Cobalt launches new website

2020 has been a big year for Cobalt: from major product enhancements to new critical partnerships, we’ve delivered on our commitment to bolstering our private capital GP clients’ experience on our platform. 

We work diligently to meet our clients, quite literally, where they are, so they can take their firms and portfolios where they want. The result is improved performance, excellent reporting, and top-tier business intelligence to propel private capital firms well into the future. 

As we head into 2021, a year that promises to hold even more good news from Cobalt, it was time for us to revisit our website. In a world where your online presence is often your first “port of call” for anyone you do business with, it was important that our own telegraphed the streamlined, intuitive experience our clients have on our platform. 

So, tying in with the logo we launched earlier this year, today we launched our brand new website. In a nutshell, it provides a clearer picture of what you can expect to find in the Cobalt platform, the company we keep among integration partners, and the type of ideas, reflections, and conversations we are having daily across clients, partners and other industry leaders. 

We hope you like it. As always, if you have any feedback or questions, don’t hesitate to reach out to us directly.

Cobalt Market Data / Chart of the Month

The Cobalt Research team recently pushed its Q1 2020 private equity benchmark to the Cobalt platform. With this dataset at our fingertips, we’re taking a look back at how the private markets fared during the economic turmoil of the first quarter this year.

In order to gauge how private equity performed in Q1, we analyzed a basket of funds (Cobalt Private Equity Index) comprised of Global and North America buyout, venture, and growth funds from 2005-2020, and compared it to the MSCI ACWI and Russell 3000® Index using the Cobalt PME methodology.

Q1 2020 Analysis: Looking back at PME trends from the past decade

Key Takeaways:

• The public market indexes followed similar patterns over the observed period, experiencing sharp volatility from 2010-2012, and showing the same drawdown in Q1 2020.
• PE not only outperformed the public markets consistently through the period but also saw less drastic downturns both at the beginning of the decade and earlier this year, with the IRR down in Q1 from 12.44% in Q4 2019. By comparison, the MSCI ACWI and Russell 3000® Indexes saw downturns of 2.62% and 2.08% respectively from the previous quarter.
• Private equity’s lowered volatility, paired with its overall outperformance, made it a more attractive investment vehicle compared to the public markets in the 2010s, as a ‘higher floor, higher ceiling’ play. This continued to be the case in the early days of the COVID crisis, as private equity returns remained more consistent through the 1^st quarter of the year.

Looking Ahead

• Generally speaking, the long-term horizons of private equity make it less volatile compared to the public markets. In the past this has meant institutional investors have increased their interest in PE during economic downturns, seeing it as an effective diversification mechanism.
• We will be looking over the next few quarters to see if the trends from previous recoveries hold true as the markets navigate COVID. If history does repeat, we should expect performance to be more steady among PE in the coming years, along with an uptick in commitments to private equity funds.

“Providing a white-glove service to our investors is about giving them the information they need, and be ‘best in class’ while we do it. We are embedding this approach in our internal portfolio management processes, and making sure we are only asking our own people to do things once.”

Looking Ahead:

• Going forward, as more winning companies and funds are found, will these regions continue to dominate this clearly profitable marketplace, or will more developing regions be able to capture these gains as well?
• Will such follow-on strategies continue to be profitable, or will increased competition lead to riskier and lower performing investments?
• Could their performance be overshadowed by the continued trust in more conventional investment areas such as Buyout?

Private equity and venture fund managers face an increasing barrage of detailed and probing questions daily. Examples:

• “What is the exposure of your portfolio to a downturn in the transportation sector?”
• “How many of your companies have published environmental sustainability plans?”
• “Can you document how you arrived at that valuation?”

The source of this inquisition? Current investors, prospective new funders, and, sometimes, government regulators. In other words, people whose questions must be answered. Which is why VC and PE managers are spending ever more time on scavenger hunts through folders of spreadsheets, PDFs, and email chains.

And if you’re thinking there can’t help but be a better way, there is. Cloud-based portfolio monitoring platforms can now gather, analyze, and report the financial and performance data from every company in a VC or PE firm’s portfolio. Users of these systems extoll their time savings, error reduction and risk-management improvements. And, not least, such platforms make it much easier to respond to investor questions, due diligence reviews, and regulatory inquiries.

Here’s what these groups are asking for most, and where a portfolio monitoring solution can help firms give it to them:

Cobalt Market Data Chart of the Month

Pooled Distributions/Contributions of Distressed Credit Funds from 2005 to 2019

This chart emphasizes the popularity of distressed credit funds during the 2008 recession, and how this run-up was followed by an immediate correction in Q1 of 2009. After the correction, contributions were relatively stable for the following decade, but did exhibit periods of volatility such as that seen in late 2015.

Cobalt Market Data Chart of the Month

NAVs and Dry Powder in the 2010’s

This chart indicates that from 2012 to 2018, in the recovery following the 2008 recession, dry powder and NAVs had seen a fairly parallel growth. However, dry powder plateaued at the end of 2018 and remained flat throughout 2019. Meanwhile, NAVs have continued to climb.

While deploying new technology will always require a level of effort and work, there are some key steps you can take to make an implementation as quick and painless as possible.

1. Designate a Project Manager/Champion who will get it done. Implementing software that will change the day-to-day flow and rhythm of your company can involve organizing a lot of data and coordinating a bunch of moving parts. By appointing a project manager who dedicates a certain amount of their time to keep the implementation on track from your side, you’ll ensure nothing falls through the cracks.And remember: we aren’t talking about a power-user here. That’s a different concept requiring a level of complexity you should never need in technology designed to make your job easier.

2. Outline Tangible Goals that go beyond dotting the i’s and crossing the t’s. Oftentimes, completing an implementation can feel anticlimactic because a clear desired result wasn’t outlined at the start of the process. By setting specific goals like: “80% of investor reporting will be created and delivered through the software this quarter” or: “all portfolio company data for year-end will be reported through the new online platform”, you’ll have measurable goals and distinct ways to tell if your implementation was a success or a failure.

3. Set a Realistic and Firm Timeline for your software implementation. While you’re going to want to see value from your new technology as soon as possible, make sure you assess the current state of your data before signing off on a timeline. It’s not uncommon for implementations to fall behind or fall apart because a firm did not realize how disorganized and disparate their data was. Informed decisions and deadlines always work out better in the long run.

4. Drive Internal Adoption by using the new technology for both internal and external needs. For example, you want to be able to create reports for both internal meetings and external needs, like LP requests or fundraising. Internal adoption is key for continued success with any given platform, but expect some resistance up front. Operational changes take time and require reinforcement.

Tech adoption is becoming critical to many firms’ success as they seek to automate processes around portfolio company data collection and reporting. Cobalt’s Implementation and Support teams are here to help your firm get the ball rolling. Get in touch with us to get started.

In the age of automation, it’s inevitable that private market firms of all sizes will have to implement new technology in order to keep up with the market. Many firms have a reputation of being hesitant to adopt new technology internally: most of us are reliant on Excel, so the idea of moving out of it can create panic. In reality, though, new technology doesn’t need to replace your current process; rather, the right solution should enhance it, and lighten your workload.

Whatever your technology strategy, it’s the implementations that feel tough, even though the payoff at the end is huge. But what’s real and what’s just fear-inducing industry rumor?

Read on as we break down four common misconceptions about private equity tech implementations, and then four key factors to getting it right.

Myth #1: A new PE tech solution is going to drain my IT department.

Reality check: You do not necessarily need to commit a lot of IT resources to implementing a new solution; many good ones provide support to complement your own capabilities.

The trick is to be thoughtful about your selection and involve a small team at the start of the implementation process, and make sure they are held accountable for a successful implementation and adoption process.

Myth #2: New PE tech means I need to warehouse our data.

Reality check: Most firms don’t need a data warehouse to store all the data from their CRM, portfolio companies, and accounting. With that said, once you get to a certain size, dealing with multiple asset classes (i.e. Real Estate + Credit + Hedge + Private Equity), you may hit a tipping point where it might make sense to invest in data warehousing.

Myth #3: The cost of new PE tech is astronomical.

Reality check: Cost is relative, and an incremental change can often feel larger than it actually is. If you’re looking at investing in a new technology suite, and that investment represents 2x the current spend, you need to look at what you are currently spending. Is it just Quickbooks and Excel? Or something more? Remember that when you consider headcount savings, economies of scale often begin to prove out as you achieve higher AUM-per-full-time-employee.

Myth #4: I’ll buy a shiny new tool, and it’ll fall apart immediately.

Reality check: You invest in the tool, but you still need to invest time in considering how data flows through your organization, and how data processes should evolve.

Hint: The answer should not be: “let’s copy paste from Excel into the new system.” Be thoughtful on how things should change as you implement a new system and think about how to empower your organization to fuel efficiency.

While deploying new technology will always require a level of effort and work, there are some key steps you can take to make an implementation as quick and painless as possible.

Read: How to get a Tech Implementation Right

If you are focused on producing and (constantly) updating forecasts for your firm right now, you are not alone. In the midst of uncertainty driven by the coronavirus, many private equity and venture capital firms are more closely monitoring portfolio health, asking:

• Which of our portfolio companies need cash, NOW?
• Which ones can stand on their own two feet longer?
• Can / should we reallocate resources to support our portfolio companies’ health?

Forecasting isn’t new to the private markets, and during a market dislocation, this shorter-term financial watch and responsive reallocation strategy is the smartest move.

“Good forecasting hygiene supports the stability play that, in theory, every private equity firm should have in their strategic playbook,” says Cobalt CEO Jason Weinstein. “With COVID-19, we’ve seen many firms issue an entirely new set of scenarios to account for updated definitions of ‘bad, worse, and worst.’”

So what should your forecasting report include? Let’s take a look.

Anatomy of a Good Private Equity Forecast

Most forecasting reports account for some combination of the following metrics:

• Cash flows: How often do you update your cash flow and income statements to stay on top of the numbers?
• Employee growth: How will your portfolio company’s workforce grow (or shrink) in the next 30-180 days?
• ESG metrics: What will your cost of energy be in the next month? What about water use? Impact to your portfolio company’s surrounding communities in any shift?
• Additional investments and/or alternative capital: Where do you anticipate making additional investments? Do you plan on issuing debt or applying a new structure to your investment?

As with everything, forecasting is not a “one-and-done” process. Best practice dictates that they be updated on a regular basis, to account for material changes to any of these metrics.

A More Efficient Way to Forecast