Getting practical with the G in ESG

In this blog we will look at some practical ways in which private equity managers and their portfolio companies can adopt good governance that translate to value preservation and value enhancement. 

At its heart governance is the system of practices, controls, and procedures adopted to govern a company. Good governance should translate to effective decisions, compliance with the law, and meet the needs of internal and external stakeholders. 

For private equity managers and their portfolios, one area of constant pain we observe is the difficulty in tracking and managing complex investment structures and transaction processes. The current way of managing private equity investment structures tends to be unstructured and ad hoc. This translates to significant time, cost, and lost value for private equity managers, both during the investment holding period, and on portfolio exits.  

Technology can go a long way in helping create a system of practices, controls, and procedures to govern investment structures.  

Create a ‘single source of truth’ system

Private equity managers must manage complex fund and portfolio investment structures. Creating a ‘single source of truth’ system will lead to: 

  • Visibility and control across all investment structures. 
  • Cross functional teams – investment, tax, legal, compliance – benefiting in the speed and accuracy with which they can work and make decisions.
  • Enables the manager to create standardised practices, controls, and procedures.  

Digitise compliance calendars and automate compliance tracking

Managing compliance obligations across complex investment structures can be extremely challenging. Failures result in significant time, cost, and value leakage. 

Technology can help private equity managers digitise compliance calendars, automate compliance tracking, and enable smart workflows that facilitate collaboration across teams and third parties. This will result in:

  • Preventing compliance lapses and missed deadlines. 
  • Staying compliant with the law across all areas – tax, regulatory, and legal requirements. 
  • Value preservation both during the holding period and on portfolio exits. 

Digitise capital tables ownership registers 

Private equity investment structures often have complex capital structures at fund and portfolio level. It is common to have structures financed with multiple instruments with complex ownership chains – e.g. portfolio companies can be owned by fund and external parties (co-investors, portfolio management). The ‘single source of truth’ system should enable:

  • Maintenance of real time and accurate ownership records across all investment structures. 
  • Simplify quarterly valuations, exit waterfalls, and investor packs (e.g. tax reporting). 

Data and documents 

Maintaining documents and information across numerous investment structures can be extremely challenging. Documents are often stored in fragmented and standalone systems that rely on individuals diligently filing and maintaining them. It commonly takes weeks or months to collate and curate information during a transaction process, resulting in significant time, cost, and value leakage. A ‘single source of truth’ system can enable:

  • Intelligent data rooms that are dynamically connected to each investment structure and its specifics – e.g. data rooms that are connected to compliance, capital table, and legal entities in the structure. 
  • Speed and accuracy during a transaction process. 

At DealsPlus, we have built a unique platform tailored for private equity funds and their portfolios to seamlessly manage investment structures. Our platform enables private equity managers to establish a system of practices, controls, and procedures to improve governance and create value.