May 13, 2014
Interviewed by: David Snow
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How Data is Changing Private Equity

In this video you’ll learn about how LPs can access the same data as GPs and how technology is changing industry relationships.

In this video you’ll learn about how LPs can access the same data as GPs and how technology is changing industry relationships.

How Data is Changing Private Equity
With Rick Kushel of iLEVEL Solutions

David Snow, Privcap: We’re joined today by Rick Kushel of iLEVEL Solutions. Rick, welcome to Privcap. Thanks for being here.

Rick Kushel, iLEVEL: Thank you, David. Thanks for having us.

Snow: You have a unique view on the market because of the role your company plays in connecting partners using information. I’d like to ask you about the rise of co-investment and how that plays into the information topic. But first, a bit of background about you and your company.

Can you talk about the historic pain that LPs have encountered as they have tried to allocate to private equity? And what is your company trying to do about it?

Kushel: Sure. iLEVEL is a platform that we’ve developed early on to allow fund managers and investors to collect, aggregate and store underlying information about the assets they invest in. We do it in a secure, web-based, hosted environment and we give them the ability to collect that information, store it, aggregate it and then disseminate it throughout the ecosystem that needs access to it. 

What we’ve been seeing now over the last several years is a trend from the institutional side on where pain exists and why they need access to that information. It comes down to two main buckets, from what we have seen. One is the cost of the asset class and the other is around risk. By providing them a tool to collect information and make it actionable, the major focus and thrust for iLEVEL arises in the allocation to the asset class because we can (a) reduce cost and (b) give them an indication of where their risks lie from what they’ve invested in.

Snow: Let’s talk about co-investing, which is on the rise in private equity, as we know. When you invest in a private equity fund, your fund manager tells you what’s going on in the fund. When you, as is becoming increasingly common, invest directly with your GP into an underlying portfolio company, now you have direct access to that company. But, from an information point of view, what have you seen people on your platform doing? Is this information now being sought after directly by the LPs?

Kushel: In those instances, we have the LPs using the same functionality that a GP would use. We have several instances of that happening, not just private equity but other asset classes as well, all within the private capital ecosystem—real estate, credit funds, mezzanine funds. We have large, significant LPs making these types of direct investments and using the same tools the GPs are. Even in the co-investment space, they’re providing or they have access to limited sets of information but enough for them to understand how a particular company and the underlying portfolio are performing over time. They’re certainly becoming more sophisticated. 

Snow: How much information do LPs need? It’s one thing to get lots of information about an underlying portfolio company. It’s another thing to actually do something with that or find it useful beyond maybe intellectual curiosity. Do you get that question and is that a challenge for the GP/LP relationship?

Kushel: We’ve actually seen heated discussions. We had a user conference last year where we had GPs and LPs having an open dialogue. The GP said, “What do you need all this information for? What are you doing with it?” LPs can get defensive, right? They need to be able to understand what they’ve invested in. They need to be able to present logically to investment boards. Then again, it comes back to understanding risk and when they can expect funds to actually return dollars into pension funds so that they actually can make payments. So, for the most part, GPs want to be transparent and they are transparent. It’s just the mechanism in which they do it.  

Snow: So, in a co-investment situation, the GP sponsoring the deal will not simply put all the information into your platform regarding a specific company for the co-investors to access, but will put a subset of that information. Is that because of a concern around revealing trade secrets? Or, why not just dump everything into the system that the GPs have access to?

Kushel: Nine times out of ten, it’s not necessary, frankly. The GPs use the tool differently. Certainly, they’re using it to track how the companies are performing. They use it to demonstrate how they’re creating value in certain instances. They’re using it to track head count. They’re using it in a number of different ways. It wouldn’t necessarily apply to investors. Typically, investors are looking for key performance metrics; they really want to understand if the company’s on track and whether or not they can model exit scenarios so that they’re in-sync with when funds will return capital back to them.

Snow: As information becomes more portable, searchable and useable, how do you think that will change the relationship between the GP and the LP?

Kushel: That’s a good question. Our vision and our hope is that it makes it a tighter, better relationship, assuming returns have historically been good and will continue to be good. But that mechanism of the way the GP and the LP communicate, assuming it can be done in a more efficient manner, should in turn raise the level of allocation. In that case, the GP wins and the LP wins. Not only iLEVEL, but other vendors in the space win. Privcap wins. Everybody wins. So that’s part of our big mission. 

Snow: I guess anything that lowers the cost of being involved or being allocated to private equity would tend to get more people interested in allocating private equity.

Kushel: One would think. One would hope so.

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