Jonathan Balkin and Santiago Gruter, Lionpoint Group
As the private equity industry continues to grow in size and complexity, digitisation initiatives across the operating functions of a PE fund has become conventional. A digital transformation strategy has long been a central component of the PE investment hypothesis, however, the industry lagged others in embracing technological innovation within their own businesses. Carried interest waterfall calculations, arguably the most important fund accounting function, is still an area in which General Partners, Limited Partners, and Fund Administrators have struggled to find a technology solution that addresses the needs of their respective organisations.
he difficulty has been in finding a
solution that offers the right
combination of automation,
transparency, and flexibility required to
perform these complex calculations. Given
the non-standardised nature of carry
calculations, we still see a large group of
industry participants rely on offline excelbased models or ‘out-of-box’ waterfall
platform solutions. The problem with these
is they either heavily rely on manual
workarounds, greatly increasing chances of
human error; or lack the configurability and
transparency required to perform nuanced
calculations and audit them efficiently. We
introduce Anaplan as an enterprise-grade
technology platform that provides business
users with the necessary functionality,
controls, and transparency necessary to
automate their own waterfall calculations.
We have identified 5 different topics which make a compelling case for why Anaplan has all the necessary features to be a great waterfall automation solution to GPs, LPs, and third-party service providers such as fund administrators when compared to traditional Microsoft Excel based calculations or specialist waterfall calculation products currently in the marketplace. Below is the list of topics we will cover with this technical piece.
Topic 1: The Calculation Engine
Topic 2: Transparency
Topic 3: Auditability & Controls
Topic 4: Business Owned Application
Topic 5: 100% Cloud Based Connected Modelling Platform
Topic 1: The Calculation Engine
One of the biggest differentiators for Anaplan compared to Excel or other specialist waterfall automation solutions can be attributed to the platform’s powerful calculation engine. The driving force behind the engine is a patented technology called the Hyperblock®, which allows the platform for perform inmemory calculations across millions of rows of data. Model users can make adjustments to their waterfall models and analyse the impact of the calculations in real time enabling for a faster reporting process. Not only does the technology offer efficiency in terms of breadth of calculation but also in terms of depth. The engine can pierce through the different levels of your data and compute only the relevant cells impacting the calculation, greatly reducing processing time.
If we were to consider a scenario for an American Style (deal-by-deal) waterfall calculation with 6 years of historical data, hundreds of investors, and dozens of investments, the data points required to run your waterfall calculations grows exponentially potentially encompassing millions of cells of data. Typically, excelbased calculations will require the usage of sophisticated macros to run complex waterfall calculations which in some cases can take up to several hours to complete and often break. Waterfall specialist platforms have their own calculation