Alternative Asset Managers Need a Better Way to Build Institutional Knowledge

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This article was originally published by the Dallas Business Journal. To read the original, click here.

 

Let’s face it, managing a portfolio of alternative assets is a complex business. Alternative asset managers must deploy capital, fundraise, manage projects, balance deadlines, compete for roll-ups, add-ons and other acquisition opportunities. For dealmakers in the energy, real estate and infrastructure markets, this work can be particularly complex due to the nature of working with tangible assets.

 

Simply put, there are so many variables in any given deal that the difference between success and failure often comes down to the details.

 

Over time, and with every transaction, firms gain greater awareness of their own strengths and weaknesses as well as that of their competition. Yet, awareness can mean different things to different firms and depends greatly on the asset class in question.

 

For real estate, it might mean sharing demographic and occupancy research. In energy, it might mean knowing which lender gives the most favorable terms for midstream transactions. In infrastructure, it could be knowing that a certain engineering firm does not prefer to work with a certain builder.

 

Regardless of the asset, the devil is in the details. To manage those details, alternative asset managers need technology that is purpose-built for their complex web of partners, participants, projects and personnel.

 

I learned this lesson firsthand while working in private equity. Our firm had accrued an amazing amount of insight into our transactions, our deal participants, and our investors. But we didn’t have a way to share that knowledge across our organization. We were wasting time and losing out on deals because we overlooked the details. Overwhelmingly, they were details we had learned during past deals but failed to quantify with data or share firm-wide.

 

To fix this, we implemented a well-known CRM system, but almost immediately the implementation turned into a disaster. The complexity and sophistication of the work we were doing could not be captured by a platform designed for a traditional, linear sales businesses. Because of that, we ended up with more questions than answers: How do you tag a joint venture partner? How are we tracking the terms our lenders give us? How do we track all six law firms representing the parties in this deal?

 

We always knew that our investment management business was complex, but after spending eight months on a failed software implementation, we realized what we needed didn’t exist yet.

 

So, we spent the next 10 years building software that could handle the complexities of the alternative assets industry. The platform – called DealCloud – is a deal, relationship and firm management platform built specifically for the complex needs of dealmakers. It is used by over 800 capital market firms across 25 countries.

 

One of the most consistent trends we have observed working closely with these firms over the last 10 years is that energy, real estate and infrastructure transactions are typically more complex than those in other sectors. With real estate, for example, deal professionals are not just judging creditworthiness or future cash flows; they must predict the opportunities and risks across different geographies, gauge a multitude of economic factors at play, and tailor each asset to its highest and best use based on age, occupancy, amenities, distance from highways, transit, etc.

 

To make things even more complicated, energy, real estate and infrastructure assets often require long, high stakes entitlement processes involving numerous regulators. Moreover, the deal participants include engineers, environmental consults, builders, leasing agents, brokers and a whole host of other actors in addition to the typical bankers and lenders.

 

With all these complexities, correctly assessing the risks and opportunities of a transaction comes down to leveraging your firm’s institutional knowledge. If that information is not housed on a single platform or if it is housed on a platform that does not accurately reflect real-life complexities, then you are more likely to lose to the competition. It’s as simple as that.

 

If you would like to learn more about how DealCloud can help your firm create greater institutional knowledge, click here.

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Author:

Ben Harrison

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