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.


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.


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.


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.


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.