François Masquelier (Simply Treasury): The necessary digitization of treasury functions in Private Equity
Going digital quickly is or at least should be “the” priority. What about the Private Equity (PE) industry? No one could contest they are behind. Technology overhaul is regarded as crucial to a strategy of selling in a few years. Companies that undergo digital transformation can become more attractive for investors but when it comes to businesses owned by PE’s, time is of the essence. Paradoxically, PE’s and their service industry are delayed on the digital transformation of their own organization. Explanations with François Masquelier, CEO of Simply Treasury.
From analogue to digital
Going digital quickly is a priority for number of companies, but more particularly for Private Equity industry. No one could contest this opinion. Technology overhaul is regarded as crucial to a strategy of selling in a few years. I am convinced that companies that undergo digital transformation can become more attractive for investors but when it comes to businesses owned by Private Equity, time is of the essence. PE owners are often in a rush to transform analogue enterprises into companies that have been thoroughly modernized using technology, as they consider this crucial for their strategy of increasing value of an asset before selling it within a few years of acquisition. Isn’t it a paradox to search for digitization of assets a PE buys to sell it in couple of years at a higher price when the same PE does not invest in its own digitization? Some large PE’s have started to engage on this digital journey. Nevertheless, it looks that it is culturally complicate to initiate for some PE’s.
Don’t forget to transform your own business too
By the way, this digital transformation is not only necessary for PE’s but also for the industry servicing PE’s and VC’s or family offices. No one could contest that this industry remains in general highly manual. Being manual may generate problems: e.g., weak internal controls, need for more human resources, more risks of errors and internal frauds, lower reliability of data and reports produced, more difficulties to be on-boarded by traditional banks, poor customer experience, higher internal costs, less visibility, and no possibility to adopt a dynamic treasury management. Technology power may also provide better management. For example, if you get access to dynamic real-time dashboards, including KPI’s and KAI’s, decision-making solutions, and more predictive analytics. Digitization is virtuous in various ways. The objective is to concentrate efforts on execution and not to spend time collecting and potentially interpretating data. Behind digitization, there is the real-time access to data. Time is the issue, as quality of the data collected and analyzed.
Going digital is not a choice anymore
Digital transformation of a business industry results in one that uses technology from data analytics, or RPA’s to AI, to enhance products and services, and ultimately all-in revenues. Alas, the execution of such a transformation can also come with additional challenges and issues for the private equity funds and the PE service companies. Managers should instill employees that going digital is a necessary component of future of the business. And going digital does not just mean replacing human by machines. It is about rethinking the whole business of the company but to question how to do things better. I remain convinced that at PE level, it is mainly a question of cultural change(s). I still do not understand why a PE looks for a company to digitally transform while it does not digitalize its own management and business. That is the PE digital paradox they must change soon to survive.
Benefits of digitization of treasury
Automation of treasury processes for front-office activities enables PE’s/RE’s or fund servicers, for example, to enhance internal controls, to mitigate risks of frauds and cyber-risks, to improve customer experience, to reduce costs and to increase efficiency, while reducing human resources too. Digitization also helps enhancing bank connectivity (which is useful to preserve relationships with banks), improving reporting given higher data quality and formats, offering real-time visibility on all (consolidated) accounts and eventually opportunity to scale up the business easily and without additional human resources.
“This is the way” (The Mandalorian)
Financial advisers and services must fill the digital gap to remain competitive. The financial advice sector and alternative fund service industries are sometimes perceived as laggard on the digital journey. They are often attached to traditional ways of working. Digitization may play a huge role in reshaping this service industry business models. The speed of digital transformation is accelerating but not at the same speed in every industry. PE’s and the service industries to alternative funds are behind corporates when it comes to digitalization. However, we know that it is difficult to achieve economies of scale without digitization. It remains a necessity and not a luxury. If we do not embrace digital shift to a greater extent, we will kill activities in the mid run. There are so many areas where digital can enhance the customer/user experience (UX). It helps meeting regulatory requirements on top of all advantages. Do not claim that there is for older customers a reluctance to use technology. Until COVID, many executives thought that ZOOM meetings with customers did not work, but now we know all it does, at least for existing relationships. Customers too have changed their behaviors and service model are changing or must change fast. For the COO’s of such service companies or PE’s, digitization should help determining the balance between modernizing overall services without compromising client satisfaction. Therefore, we believe it is time to accelerate digital business transformation to keep competitive advantages on peers.