CEPRES RESOURCES

What is private equity due diligence?

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In the private financial markets, private equity due diligence describes a potential investor’s process for assessing the desirability, value, financial viability and potential of an investment fund before they commit capital.

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Due Diligence participants

Conducted by analysts and other specialists on behalf of “limited partners (LPs)” that include multi-billion-dollar pension funds, endowments, insurers and other institutional investors, private equity due diligence typically includes collecting and processing data about a “general partner (GP)” or fund’s past investment performance, its finances and other details. LPs also perform qualitative analyses that vary from investor to investor, as well as quantitative analyses that are more standardized across LPs.

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Outcome

The results of the due diligence process determine whether or not an LP will commit capital to a fund. Institutional investors tend to have sophisticated due diligence protocols in place for all of their investments, whether public or private, but private market due diligence poses unique challenges.

Private equity due diligence challenges

LPs investing in the private markets face greater due diligence hurdles than when they invest in the comparatively transparent public markets. Sourcing data and conducting the complex analyses needed to make a good decision are difficult.

Private equity, private data

“Private means private.” Private equity managers are not required to publicly disclose much information about their finances and investment track records. That means LPs must ask those GPs for their financial and performance data in order to conduct due diligence. However, the information provided can feel more like marketing materials designed to entice an investment rather than an in-depth, transparent record that an LP can rely on to make an informed investment decision. For example, some funds provide historical performance data to potential investors, but only for the top quartile of their investment portfolio . Misleading marketing and metrics are a growing concern for U.S. regulators, but many LPs continue to rely on cherry-picked, incomplete data to make investment decisions, thus increasing their risk profiles. Investors that want to dig deeper or verify GP-provided reports will need to further mechanized their private equity data and analysis.

Third-party data scrapers

LPs may look to third-party providers of private market data to bolster their private equity fund due diligence efforts. However, some data sources are more accurate and actionable than others. Some providers offer financial performance data scraped from the typically limited, summary-level information available publicly or provided by GPs. In addition, some data sets may be too small for investors to be confident in their accuracy. When assessing a third-party private equity data provider, investors should demand that data be primary-sourced – meaning ingested directly from GP track records – not scraped from GP pitch books or elsewhere online. The best profile of a GP’s track record includes actual underlying cash flows of the GP’s investments – not only the high-level metrics showing overall fund performance. Investors can access those types of high-quality, actionable data and insights with CEPRES. We offer clients the most accurate, actionable, and granular data – sourced directly from GPs on your behalf. Related article: CEPRES private market data coverage eclipses 10,000 funds & 100,000 PE-backed companies.

A lengthy process

Private equity due diligence is often a manual and time-consuming process. Approximately half of LPs spend more than six months researching and selecting a fund manager, with a small number taking as long as three years to complete that process . Investors are increasingly looking to technology to make their due diligence processes faster and more efficient and ultimately ensure the right decision is made. CEPRES Due Diligence speeds up quantitative analysis, which includes analyzing historical investment track records to uncover patterns and drivers of risks and returns represented by a GP’s previous investments across multiple funds and market cycles. With CEPRES, those months turn to minutes. Investors can analyze more track records with better confidence to ensure they drive better investment outcomes.

50%

CEPRES cuts due diligence time in half, boosts the number of funds investors can evaluate and enables better investment decision making.

10,500

CEPRES covers more than 10,500 funds, enabling you to run true benchmarks on GPs.

93%

CEPRES has full data coverage of 93 of the PEI 100, ensuring LPs have track record analysis data on the most influential GPs in private equity.

Thanks to CEPRES, we were able to triple our US lower-mid market buyout allocation by expanding our due diligence efforts massively — all with a PE team of 3.

Investment Manager German Pension Plan

Ready to transform private market investing?

Connect with our experts to learn how CEPRES can help you:

  • Access unprecedented private market data and insights gleaned from more than 10,000 funds and 100,000 portfolio companies.

  • Transform due diligence from a value-detracting into a value-enabling activity.

  • Drive transparency, efficiency and accuracy in your due diligence process by replacing painstaking data manipulation with instant answers to your most important questions.

  • Get under the hood of GP track records and operational KPIs of your potential investments to understand what is really driving performance and uncover hidden risk.

  • Get a look-through into underlying deal-level metrics and operating company cash flow for individual assets within a fund.