Private equity is an industry that has historically run on conversation and handshakes. Investors turn to their connections for input on which businesses are worth picking up and which are better left on the ground; they rely on conversations held in meeting rooms to come to their final decision on a buyout. In an age of AI-powered decision making and technology, private equity remains a remarkably human-centric discipline — that is, up until the past few years.

1. Big Data Will Lift
Investment Professionals
to New Heights
Matthew Doyle
www.matthewdoyle.me

2. Private equity is an industry that has
historically run on conversation and
handshakes. Investors turn to their
connections for input on which
businesses are worth picking up and
which are better left on the ground;
they rely on conversations held in
meeting rooms to come to their final
decision on a buyout. In an age of
AI-powered decision making and
technology, private equity remains a
remarkably human-centric discipline
— that is, up until the past few years.

3. The entry of big data onto the investment landscape may prove to be a disruptive and productive herald of
change for those working in private equity. Digital technologies can help investors conduct due diligence
before acquisitions and empower professionals to make informed decisions more quickly than they might
have been able to alone. As Olof Hernell, Chief Digital Officer at the Swedish private-equity firm EQT noted in
a recent article in the Wall Street Journal, “We as an industry spend a lot of time manually gathering data
and manually doing predictions. And of course that’s better done by technology.”
Hernell has reason to be optimistic about big data’s potential. Though EQT’s private equity branch has yet to
make significant strides with the technology, its venture capital subsidiary has established itself as a
tech-forward proponent. The firm’s VC branch utilizes Motherbrain, a data-analysis platform built by EQT
partner Andreas Thorstensson, monitors approximately two million companies daily; Thorstensson himself
told a reporter for the Financial Times that 30% of the investment decisions he makes come through the
platform. He further shared that the technology has significantly influenced his investing approach, veering
him away from risky entrepreneurs that he might have otherwise invited into a meeting.

4. When asked about his reasoning, Thorstensson simply states: “The data doesn’t lie.”
His mindset is more than a little revolutionary — especially for those in private equity. Venture
capitalists, given their proximity to and interest in cutting-edge technology, were relatively
quick to weave big data into their investment approach. Private equity professionals have
been somewhat slower, although most have taken strides to integrate such technology into
their portfolio management strategies and transaction tactics. According to statistics
provided by a recent national survey, 77% of private equity executives used data analytics
during the due diligence process, while 68% applied it during buyer negotiations.

5. However, having access to data-driven tools doesn’t necessarily equate to private equity
investors using them effectively. In 2017, researchers for the multinational professional
services firm Ernst & Young released a report on the barriers that prevent proper big data
integration. They found that less than a quarter of surveyed private equity investors feel
that they can very effectively “use data tools to position and validate their businesses for
potential buyers.” A mere 30% believe that “they are very effectively managing portfolio
businesses real-time and capitalizing on customer and margin opportunities.”
The main problems, researchers indicate, stem from a lack of consistency and
standardization. Of the surveyed firms, 80% struggle to apply data-driven analytics
consistently. Moreover, given that the tens or hundreds of portfolio companies a firm
works with each have their own KPIs and reporting protocols, it can be remarkably
difficult for firm managers to establish a clear, data-driven perspective — let alone tailor a
data-driven approach to each company.

6. All this said, I would argue that these problems are growing
pains that private equity firms can and should work through
to achieve maximum value from big data analytics. Already,
some firms are doing so; the above report notes that despite
the challenges posed by a lack of standardization, “firms have
made progress — 75% of PEs now have access to portfolio
management tools that enable them to standardize
reporting across the portfolio, while two-thirds (66%) use
technology that gives them real-time access to management
performance.”
Once private equity investors overcome these short-term
obstacles, they can use data-powered tools to power their
long-term growth. This isn’t to say that we should kick
relationship-driven dealmaking to the curb or tailor every
decision to suit a digital tool’s conclusions — quite the
opposite! Technology solutions and big data will only ever be
a complement to human reasoning. It can speed and
improve the quality of our work, but it will never render it
obsolete.
Big data will be the locomotive that powers private equity
investors towards future success. We can either climb aboard
— or wave goodbye to the opportunity from the platform.

7. THANK YOU FOR
READING!