Behind the curve is not a place you want to be. And yet Matthias Kirchgaessner of Plexus Investments – an adviser to family offices – is convinced that’s where most private debt managers sit when it comes to use of the latest technology.
At our Germany Forum in Munich earlier this year, he asked representatives of general partners in the audience how many were using data scientists to assist their underwriting processes. Only one delegate put up their hand, and he came from an online lending platform where – because of the sheer volume of loans being processed – technology is essential to keep the wheels turning.
For mainstream private debt managers, the suspicion is that cutting-edge technology is rather less of a priority. In a new PDI podcast, Kirchgaessner said he thought managers should be making better use of Big Data to help them assess not just the current shape of companies, but the kind of shape they are likely to be in three to five years down the line, when the loan matures. He thinks sector-focused analysis – developing a granular picture of what is, and is likely to, affect given industries – could be improved significantly by a more open-minded approach that embraces the latest technological innovations.
And yet, rather like those tales from the folklore of alternative assets when GPs would issue their quarterly reporting to limited partners in the form of Excel spreadsheets only, old habits die hard. Of course, in a digital age where humans may feel increasingly marginalised by the advance of robots and artificial intelligence, there’s something reassuring about people retaining control. But when it comes to analysing reams of data, they can miss things – especially if they are relatively inexperienced. The importance of the broader industry context – the ecosystem within which a given company operates – may also be overlooked by a human more easily than by a machine.
Alex Schmid of fund manager ESO Capital participated in the podcast alongside Kirchgaessner and it was clear that his own firm took the issue seriously, with an emphasis on how technology can be used to trawl data to free up team members to focus on other areas. By deploying a proprietary algorithm which sucks in company information from public sources, Schmid said his firm is able to target firms that may be interested in working with ESO with far greater precision – producing a 20 times better response rate than the firm would get by cold calling, he claimed.
Schmid referred to a theme which crops up in so many conversations these days, and not just in a private debt context – the increasing sophistication and demands of LPs. When it comes to use of technology to assist in many operational aspects – as well as in the reports they receive – the bar is set very high. “Even if you are a small manager, they don’t draw a distinction between you and Blackstone,” Schmid noted. Better get moving up that curve.
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