The Changing Functions in Private Equity Firms

Just a short 6 years ago, cloud computing was just becoming a trend in the corporate world. While it posed so many benefits for so many corporations, private equity firms have been slow to adopt the trend and make the most of it. However, some private equity firms have jumped on the bandwagon and have seen a substantial change. Shailesh Dash, a founder of Al Masah Capital, has seen tremendous growth for his clients between 2011 and 2015 and is working hard at staying on top of his game for future clientele. How do he (and other private equity firms) do it?

Embracing Change

The biggest move the private equity firms could do is to take a risk on cloud computing. Change is hard when something you are doing is already working. Now, many private equity firms that have embraced change are wondering why others aren’t jumping in and seeing the major benefits they wouldn’t otherwise have.

Transformation starts in the back office, where many managers are finding themselves swamped by doing everything but raising and investing money. If they can’t spend time raising and investing money, how can your PE firm be a success? Transform that back office and throw in investor transparency, regulations, and global reach and you will see fast results.

Why some PE firms are slow is anyone’s guess. Many attribute it to a lack of education about cloud computing and it’s impressive benefits. Since 2013, PE’s have been slowly taking the risk and seeing costs lowered and security increased. Leveraging an experienced and managed cloud service provider is one that any private equity firm can get excited about because you remove the burden to hire and attract talent. A talent that is incredibly difficult to find and can be expensive.

More Opportunity, Less Risk

When we outsource to the cloud, we have a scalable and global model that allows for intense leverage to save big on costs. The cloud service has an infrastructure and experienced people behind the scenes with a controlled environment. Outsourcing to a cloud service frees you up to take more opportunities than you would if you were bogged down by minuscule tasks. Let them use their expertise on the mundane so you can use your expertise elsewhere!

What Are Successful Private Equity Firms Outsourcing?

As with most things, what is outsourced will vary based on the size of the company. Mid-sized firms typically want everything across the board to be streamlined. Often, mid-sized firms will look for cloud sourced IT firms so that they can save on hiring IT specialists and still have the benefits of a team available at any given moment. Larger PE firms often have in-house teams that run the day-to-day operations. However, they will outsource niche projects to cloud computing services. There is an incredible desire to feed off the infrastructure and talent of an established successful cloud computing IT team. Typically, they are seeking assistance with workflow or business process issues and are deeply concerned about with data privacy and cyber security.

Don’t Ignore the Risks and Opportunities

All successful private equity firms look at all the risks and opportunities when looking to adopting cloud computing services. When looking for the right service you want to pay attention to the technology, people, and processes. Always start with the people, they are the ones who hold the expertise and talent. Are they the right fit for your needs? Follow up by looking at their process and technology they use. When you have the right people, right processes, and right technology you will see lower risks and a lot of potentials.

In-House IT Equals Inherent Risk

If your private equity firm decides to keep an IT team in-house, there is intense investment required. You must invest in your staff, cybersecurity protocols, and infrastructure. None of this comes with a small investment nor is it easy or efficient. Additionally, it’s not a one-time investment when you have to consider the costs associated with changing regulatory requirements, changing technologies, and cyber security threats. Whether the function is managed internally or externally, there will always be a risk. Technology cannot be considered infallible, but how your company approaches the risk of exposure and reduces the exposure is important.

Hold on To Your Accountability

Another big reason for successful PE firms utilizing cloud computing is that they require internal accountability. You can outsource any function to another firm but you cannot outsource accountability. By owning your accountability, you will make smarter choices with whoever you choose to work with and uphold a positive reputation to your employees, investors, regulators, and clientele.

Stay on Top of Cyber Threats

Whether you stick with an internal team, or outsource, it’s vital to stay on top of those cyber threats that can destroy everything your firm has worked so hard at building. Hackers are savvier and continue to be quicker and sneakier each day. Utilizing active threat protections for situations involving ransomware and zero day vulnerabilities is top priority. Next concern is of course the internal attack. Some are malicious and others are unintentional. Regardless, for the private equity firm, they are highly dangerous. It leads to the adage “your employees are either the weakest link or strongest line of defense”. A simple phishing scam designed as an internal email can leave you exposed and your employee confused as to what happened. Training and educating your employees, either internally or through your outsourced service team, is the best way to keep the threats at a minimum.

Overall, PE firms are still slow to adapt to this newer technology. It’s a shame because the bottom line is a huge benefit for all PE firms to save money and increase revenue. For example, the firm switches to a cloud infrastructure and reduce upfront capital expenditures and incur a predictable monthly fee. It streamlines cost and makes budgeting incredibly easy. Despite the cost, risk is a hot topic for all private equity firms and is one that should not be taken lightly. Whether you choose in house or in the cloud!

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Contribution made by Becky W.

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