Category Archives: Industries Investment Research

Introduction

Investment Banking is a special type of banking that helps organizations or individuals raise capital and provides consulting services to them. It helps in conducting large complicated transactions such as mergers or acquisitions or raising an initial public offering (IPO) using underwriting.

Investment Bankers are experts in the field of finance who have their fingers on the pulse of the market. As acknowledged worldwide this is one of the most complex financial mechanisms in the world.

As has been the case with different sectors, it has been for some time now that organizations have started investment banking outsourcing services to third-party vendors as well. Outsourcing one means giving the authority to outsource one of its services to these third-party vendors so that the company can save on operating costs and get specialized services from highly skilled staff- all this while ensuring adequate data security and adherence to regulatory compliances.

This helps organizations not only streamline their services but also provide value-added services to customers that they couldn’t have thought about earlier.

It is important to note that the nature of investment banking outsourcing and the services provided by vendors have evolved alongside technological advancements. The first and foremost is business digitization, which has resulted in increased transparency and visibility for clients, as well as a better end-user experience for customers. This has resulted in improved strategic partnerships and, as a result, higher quality work being outsourced by investment banking outsourcing clients, which can only be met with strategic partners.

Challenges Faced by Investment Banks

Modern investment banking faces various kinds of challenges that are listed below:

Challenges Faced By Investment Banks

Challenges Faced By Investment Banks

Scarce Capital Resources

Due to recession and depression all over the world, almost all markets, companies, and individuals are not comfortable investing their money in the capital markets. This has created a world where capital resources have become scarce. The job of an investment banker is to invest capital more efficiently, but due to the scarcity of resources, there is a reduced business for investment banks in general.

Need to Reduce Costs

Markets have become more competitive. As a result, the cost of goods and services is decreasing. This has an impact on the finance industry as well. Investment banks’ margins are shrinking, and thus their cost of capital is decreasing. As a result, they must reduce costs to encourage their investors to invest money.

Increased Regulations

The new structured products created and sold by investment banks go through strict regulations since the mortgage crisis in 2008. This creates a limit on the operations of investment banks. These increases cost for investment banks and they have to maintain a different department of qualified professionals so that they could create and bring in new investment opportunities after scrutinizing them.

Technology Disruptions

Rapid technological advancements have drastically altered every industry in the world, including investment banking. The fintech industry has emerged over the years as new technology. This industry revolves around providing the same financial services at a lower cost. They have access to cutting-edge technology and a modern network, allowing them to raise capital at a lower cost.

Cross Selling Complexities

A huge area of the investment banking services sector relies on cross-selling. For example, if someone is looking for mergers and acquisitions, the investment bankers provide them with the services such as issue management, capital structure advisory, and many more. This way they bring value to their clients. But due to limited budgets, they are limited to the services they offer. The declining budget causes decreased revenue for research and other departments.

Benefits of Investment Banking Outsourcing

There are several reasons why investment banking outsourcing is becoming increasingly popular. We have tried to highlight some of these reasons below. They are:

Benefits of Investment Banking

Benefits of Investment Banking

Focus on Core Business

Investment banking outsourcing can help companies in focusing on their core competencies rather than focusing on mundane tasks and being worried about their day-to-day operations.

Controlled Costs

Cutting operational costs is a challenge that exists with organizations throughout. Investment banking outsourcing provides an avenue where companies can take care of differences in the relative value of currencies to derive as much as 30-50% savings in costs.

Increased Efficiency

Investment banking outsourcing is a specialized operation and the workers who work for these banks need to be highly skilled for this. A similar talent of MBA’s exists in low-cost destinations like India where the operations can be outsourced to them. Highly skilled talent helps in improving the efficiency of investment banking services.

Changing Economic Factors

In today’s uncertain world, the political dynamics are changing daily. This has an impact on the economies of the world and since we are so intertwined today the ripple effects of adverse conditions in a globally connected country are bound to have effects on the whole world. Investment banking outsourcing ensures the risks are well hedged with specialized partners operating from different geographies across the world.

Technological Changes

Investment banking outsourcing has ensured that the companies are up to date with the latest technological advancements that are occurring worldwide at a fraction of the cost had they invested real-time into adopting them. The use of the latest technologies by third parties ensures that all the technological challenges are met.

Time Zone Advantage

The gap in time zones between your country and the area you are outsourcing to, in addition to the cost advantage, is another important benefit. By doing so, you can focus on your primary tasks all day long while also having finished your day-to-day operations by the time you get up the next day. It gives you the benefit of round-the-clock business operations.

Magistral’s Services on Investment Banking Outsourcing

The outsourcing of investment banking may be a way to cut operating expenses. In an era of growing complexity in both established and new industries, investment banks are extremely nuanced. Smaller investment banks have a difficult time juggling their project pipelines and manpower needs. Medium-sized banks are eager to develop their expertise in emerging industries, which are bustling with activity and volume. However, large banks are more concerned with cutting costs while maintaining the quality of the services they provide to their customers. Magistral provides a range of service options to support Investment Banks.

Some of the services that are associated with Investment Banking Outsourcing that is offered by Magistral consulting are:

-Deal Sourcing: Performing industry and market analysis, finding potential targets, and publishing newsletters are various kinds of services provided under deal sourcing.

-Data Cleansing: Data cleansing and mining are done to perform analysis on suitable data.

-Valuations: Valuations are done by creating financial models by various methods such as LBO/DCF Modelling, Comparable Analysis, Precedent Transaction Analysis, and Impact Analysis.

-Due Diligence:  Research-based due diligence both primary and secondary are performed to uncover the true potential of an asset while giving a completely independent opinion on investment quality.

-Deal Execution: Teasers and Investment Memorandums are made along with identifying the potential investors/buyers.

-Portfolio Management: Providing ESG compliance monitoring, preparing financial reports, business development support, and procurement support is provided.

-Equity Research and Analysis: The services provided under this head include fundamental analysis, quantitative analysis, credit analysis, and country analysis.

-Marketing: This includes creating white papers, case studies, thought papers, CRM management, etc.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates, and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModellingPortfolio Management, and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

What is an Outsourced CFO?

In today’s outsourced and globally connected business world there are many functions of businesses that are being outsourced like accounting, payroll, operations, IT, and marketing among others. Unfortunately, not many companies are aware that finance as a function can be outsourced too.

Herein, comes the importance of an Outsourced CFO. An outsourced CFO is a financial expert who provides financial services on a part-time or full-time basis to companies. The role of an outsourced CFO is to provide strategic insights as well as provide expertise in areas such as formulating strategy or providing core financial services help. This includes areas such as support in finding cash flows, raising capital, implementing more efficient systems, or formulating growth strategies. Usually, outsourced CFOs have considerable experience performing high-level financial roles as they may have worked in corporate finance roles in other reputed organizations.

Why one should hire an Outsourced CFO?

Outsourced CFOs can lead up to 40-50% savings in costs. About 80% of financial services executives outsource or offshore some of their services.   Highlighted below are some of the top reasons for outsourcing this critical finance function.

Benefits of Outsourced CFO

Benefits of Outsourced CFO

-Currently undergoing growth – This is usually the case for companies that are witnessing a lot of growth. A common example could be growth related to the launch of new products or say when a company is entering a new market.

-Resolving key business challenges – This comes into the picture when a company for instance is trying to resolve challenges such as cash flow, cost cutting, or looking to improve operational efficiencies.

-Raising debt or equity capital – Outsourced CFO can be of great help especially when companies are looking to raise capital. They do so by assisting in strategy formulation for it, due diligence, and in raising capital in terms of debt or equity mix.

-Maximizing margins – By analyzing current spending and costs, the outsourced CFO can suggest improvements that can be made in spending.

-Need for an interim CFO – This normally is the case when there is a need felt to place an interim CFO, especially in cases where an organization is transitioning from one CFO to another or a need is felt to outsource an organization’s finance function simply because someone else can do it better.

-Taking advantage of consulting services- An organization can look to hire an outsourced CFO simply because they can do the task better.

How does an Outsourced CFO provide value?

We have already seen why companies should look forward to outsourcing their services to a third-party service provider. In this section, we will look at some of the key benefits that are provided by an outsourced CFO. It must also be mentioned here that there are cost implications associated with hiring a CFO. Smaller companies may not have the budget to hire a CFO. This means they can incur a lot of savings by outsourcing this function which can be at a fraction of the costs of the salaries that are paid to a CFO. Not to mention the availability of talent and global access to them without incurring many operational headaches. These talents are simply at a third company party’s disposal the benefit of which can be reaped by companies.

There are some of the other benefits which an outsourced CFO can provide. Some of them are:

-They help in financial planning and analysis by providing assistance in the form of budgeting, and forecasting future revenue or cash flows for a company.

-They can help an organization in assessing its strengths and weaknesses vis a vis competition.

-Help in designing complex business models which necessitate the use of techniques such as NPV and IRR.

-Help in analyzing spending and cost incurred by a company and thereby suggest improvements in cost cutdowns.

-Assistance with financial statement preparation.

-Assistance with yearly financial reporting.

Top 10 Outsourced CFO services

A question that arises naturally is what kind of services are provided by Outsourced CFO.

Listed below are the top 10 services

Top Outsourced CFO Services

Top Outsourced CFO Services

-Financial Strategy – One of the key benefits of outsourcing CFO services is in designing a company’s financial strategy. These are designed both short term as well as long term.

-Forecasting – Forecasting for the future is one of the key functions of any finance division of an organization. Preparation of the details helps in planning an operational roadmap for an organization. It requires a strategic understanding of requirements, assessing current and future capabilities of a company, competition analysis, and mastery in building financial models

-Financial systems strategy and design – With growth, it becomes imperative for any organization to implement software and improve process that can match an organization’s growth strategy. An outsourced CFO can help address this pain point by redesigning systems and suggesting improvements in current processes.

-Budgeting – Managing budgets is one of the key functions of the finance function. Normally budgeting is done for a 5–10-year time horizon. Budgeting helps to plan spending and future revenues in great detail.

-Financial statement preparation – An outsourced CFO can help in preparing financial statements as well as interpreting their consequences. This is the most useful information for any organization.

-Raising capital – Here a person is introduced to a host of investors, people or organizations who can help a company in raising its capital.

-Capital structure – This is done by suggesting which would be a better route – debt or equity or a mix of both.

-Interim CFO services – This service is most useful to avail of in case there is a transition from one CFO to the next or in cases where low-cost outsourcing seems to be a better option.

-Cost cutting – Costs are an important factor in decision-making. Outsourcing its services to a third party can help in this.

-Complex decision making – This is especially true with companies where complex decision making is involved and which requires the knowledge and expertise of a person. Examples could be making models for Mergers and Acquisitions, management buyouts, etc.

How can Magistral help in providing CFO services?

Magistral offers Portfolio Management services for varied kinds of the portfolio of companies such as Private Equity or a Venture Capital fund. For all the investors who sit on multiple boards, it is a headache, to implement something in a company that worked in another portfolio company. The problem is more acute when all companies are in similar industries and are facing quite similar headwinds. Limited supervision time available to board members, unavailability of resources across companies, and implementation knowledge held in a single portfolio company, all play spoilsport. It’s like re-inventing the wheel every time for the same problem.

We help portfolio managers in centralizing their Marketing (mostly digital), Strategy (Fund-raising and Exits), and Finance at fraction of the cost required to have dedicated functions in each portfolio company, big or small. The off-shored extended team also ensures no knowledge is lost for similar projects across companies and multiple projects in multiple companies can run at the same time, prioritized as per the schedule of board meetings. Learning, of course, is cross-pollinated across projects.

Our service offerings for portfolio and other companies are:

-Strategy: Identifying add-on acquisitions and potential buyers, fundraising, exit strategy, growth strategy, and content marketing

-Analytics: Financial reporting and analysis, preparing dashboards, data visualization, text cleaning and mining, predictive modeling, KPI tracking, and web scraping

-Sales: List generation, CRM cleansing and management, competitive intelligence, and social media management.

-Financial planning: Budget preparation, forecasting, and competitive quarterly earnings updating.

-Procurement: Spend analysis, vendor identification and management, spend base cost reduction, category strategy, RFP support and procurement strategy.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is in Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

Introduction

An investment memorandum is a legal document that outlines a private placement investment’s goals, risks, and terms. Financial statements, management biographies, a full explanation of the business activities, and other information are included in this document.

The purpose of an investment memorandum is to inform purchasers about the offering and protect sellers from the risks of selling unregistered securities. It is a document sent to potential investors. It is an essential business plan that skilled investors may use to do due diligence. These documents are mostly a formality employed to satisfy securities authorities’ obligations, as most intelligent investors conduct substantial due diligence. However, offering memorandums is comparable to prospectuses—private placements rather than public offerings.

An offering memorandum, also known as an investment memorandum, is often prepared by an investment banker to explain a company’s capital requirements to potential investors. The banker utilizes the memorandum to hold an auction among a select group of investors to find the best deal.

Private equity firms sometimes seek to accelerate their growth without taking on debt or going public. If a manufacturing corporation, for example, wants to grow the number of facilities it owns, it can use an offering memorandum to fund the expansion. When this occurs, the company must first select how much money it wants to raise and at what price per share it will do so. In this case, the firm needs $100 million to fund its expansion for a $60 cost per share.

Importance of Investment Memorandum

An investor memorandum is significant since it explains if the company is a good or terrible investment. The memorandum serves as a business overview or a revised business strategy.

It allows a company to demonstrate its strengths and why it is a good investment.  Its significance extends beyond the fact that it is a required document in the investment process for sellers and investors. The document protocol aids the investor in comprehending the investment’s prospects, potential dangers, prospective returns, activities involved, and overall capital structure.

The offering memorandum protects the investor and the issuers of securities. The issuer must adhere to all SEC requirements to the letter (Securities and Exchange Commission). The Securities and Exchange Commission (SEC) promotes investor fairness by protecting investors in the securities sector from false information and assisting investors in making educated decisions when investing large sums of money.

The offering memorandum also gives the vendor a professional appearance. Investors will not put their money into companies that do not appear to be well-organized or experienced in their field. Memos are a simple approach for stakeholders to generate opinions about a concept. This is especially true when discussing a memo with possible investors, but it also applies when utilizing a memo to make a product or strategy choice. If an investment memorandum is well-designed and complete, it may be an indirect marketing tool.

What is included in the Investment Memorandum?

Investor memorandums usually provide information on the company’s structure, financial risk and health, and other pertinent information. This information aids an investor in determining if the risk is acceptable in exchange for the business’s prospective profits. A typical memorandum has the following items:

Outline of Investment Memorandum

Outline of Investment Memorandum

Introduction

The initial pages of the offering document include a brief description of the firm, its principal operation, and all “legends” needed by federal and state securities regulations.

Summary of the Terms of the Offer

The firm’s capitalization –before and after the offering – should be included in this part, which is usually the form of a term sheet. Liquidation preferences, conversion rights, anti-dilution clauses, voting rights, and other investor protection provisions may also be incorporated.

Factors at Risk

A PPM will list any risk factors that the issuer can think of that might affect the investor’s investment, including both generic risks that apply to comparable investments and risks specific to the issuer and its securities Concerns might include, for example, reliance on a strategic relationship, reliance on a limited number of individuals, or competitive risks.

Description of the Company and Management

This part offers the company’s history and discusses its goods and services, the industry, goals, competitors, advertising and marketing strategy, suppliers, intellectual property, client descriptions, and other essential information the investor could find helpful. Biographical information, specific abilities, and additional background information will be included in management information.

Use of Proceeds

A corporation must explain how it intends to use the net funds generated from the offering and the estimated amount anticipated for each purpose. This allows the investor to see how their money, as well as that of others, is being invested is used

Securities Description

The rights, limits, and class of securities being sold are described in this section. It should also indicate the company’s ability to adjust its capitalization through multiple shares and dividend distribution types.

Exhibits

Exhibits allow a business to present additional information and documents that may be relevant to an investor’s choice. Copies of investment contracts, financial statements, the issuer’s organizational documents, essential agreements, licenses, and other documents may be included as exhibits.

Tips for Writing a Perfect Investment Memorandum

An investment memorandum can be prepared while keeping in mind some points like making it simple, preparing a layout, mentioning transparency about risk, including the investment’s terms, etc, these are further discussed below:

Writing tips for Investment Memorandum

Writing tips for Investment Memorandum

Make it simple to comprehend

Clarity is essential. It’s critical to take your time and speak in a manner investors can comprehend. Their primary objective is to grasp the possibility and develop a business plan. If you use jargon in your investment memoranda, you risk attracting the wrong attention. Keep things simple; don’t throw folks off by making things too complicated.

Optimize the layout

Include a summary of the firm and the market. An overview of your products and services, competitive analysis, your target audience, and your financial model should be included. Use graphs and charts to concisely communicate essential information while making your investment memorandum. More aesthetically appealing. This is very beneficial when dealing with financial data. Using a bar chart to share sales growth, for example, emphasizes how quickly you’ve expanded and is simpler to read than a standard table.

Be transparent and upfront about the risk

Nobody enjoys being surprised. As a result, rather than the fund discovering risks during due diligence, set them out in your investment memorandum early on.

Include the investment’s terms

Outlining the financial project’s goals is an intelligent thing to undertake. Determine if the funds will be utilized for expansion, acquisitions, or working capital.

Make sure your financials are in order

This is the most crucial aspect since it is the key to receiving high-level term sheet offers. You must supply a complete financial statement that contains the following information:

-Gross revenue

-Flows of funds

-Revenue

-Profit and Loss Statements

-EBITDA

-Margins

Use statistics from the previous two years and an estimate for the following five. This allows potential investors to run their numbers and see if you’re a reasonable risk. Be as specific as possible.

Why Magistral Consulting?

Magistral consulting prepared a Private Placement Memorandum for a large land parcel amid a mega-global city and successfully analyzed cash flows and returns from all scenarios. It also used to raise over 40 million USD worth of co-investments.

Investment Memorandums

Magistral consulting provides investment memorandum services for Funds, Properties, Farms, Luxury Hotels, Land Banks, Islands, Resorts, etc.

Analysis of Valuation

Using techniques such as comps, precedent transaction research, and leveraged buyout to determine the company’s fair market value.

Primary Research

Exploratory interviews with all stakeholders at Target Company, including management, workers, ex-employees, vendors, and investors, to identify any red signals.

Company Profile Data

To ensure that the memo is completed in its completeness, we gather all the company-specific data and all the questions that may be asked.

Detailed Financial Analysis

We provide a complete financial review utilizing all essential characteristics from balance sheets to income statements.

About Magistral Consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is in Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

Introduction

When a bank or financial lender outsources the working of its mortgage files, this is known as business process outsourcing. Some banks and lenders employ in-house loan originators, loan officers, underwriters, and closers. The process is outsourced to third-party organizations by banks and mortgage lenders who do not have these workers on staff. This is called Mortgage Lending Process Outsourcing.

Mortgage Lending Process Outsourcing can be a very cost-effective technique for originating and processing mortgages, which is one of the reasons why a lender would use it. Because the mortgage company would not have to house all these people, it can save money on rent and other operating costs associated with keeping an office or commercial space. The mortgage lender can also save money on salaries and worker’s compensation by outsourcing instead of hiring full-time staff. This method allows the mortgage lender to pay specialists while working on mortgage files while also employed in overflow situations for mortgage lenders, banks, and mortgage businesses.

Banks and lenders often turn to Mortgage Lending Process Outsourcing to manage the problem rather than hiring more people to cover peak periods and then laying them off after business slows. Employees of these firms do the same tasks as those of a mortgage lender’s in-house staff. Typically, these individuals run a business out of their own home office, or a place owned by another company. When a client applies for a mortgage, the bank sends the file to an outsourced loan officer. When the loan officer has finished working on the file, they pass it on to the mortgage lender’s outsourced underwriter. The procedure will be repeated until the mortgage file is closed. The sole distinction between Mortgage Lending Process Outsourcing and in-house processing is the location of the file’s professionals. They are not personnel of the lender in this circumstance.

Benefits of Mortgage Lending Process Outsourcing for SMEs

Despite the monetary crisis, mortgage process outsourcing has aided innumerable mortgage brokers, banks, and lenders in dealing with new generation customers and their diverse expectations. The following are the few primary benefits of outsourcing mortgage services:

Mortgage Lending Process Outsourcing Benefits

Benefits of Mortgage Lending Process Outsourcing

Reduced Turnaround Time

Lenders are compelled by market demand to change their product portfolios often. A mortgage is initiated in numerous steps, with the borrower having the possibility to back out. While outsourcing does not entirely remove this danger, it does speed up the decision-making process and reduces the chances of a borrower withdrawing from a loan application.

Targets may be conducted while lowering turnaround time by incorporating the ability and potential of an experienced team that provides a streamlined process by offering high accuracy and enhanced efficiency.

Focus on Core Competency

One of the significant advantages of outsourcing mortgage processing is that the service provider’s highly qualified team can do complex mortgage-related activities, allowing the company to focus on critical goals while managing the extra work. The service provider can conveniently oversee many mortgage activities, increasing profitability and growth. It also aids in the re-allocation of internal resources for a more effective workflow.

Access to Big Data Analytics

Big data is nowadays a must-have resource for any business. Several financial institutions are increasingly actively using big data analytics to serve their consumers better. However, processing copious amounts of data is costly, and not all small firms or institutions can afford the necessary technology and skills. Outsourcing allows full use of big data and makes analytics-driven loan and pricing model decisions, leading to a considerable rise in profits and increased consumer satisfaction.

Minimal Overhead Costs

Financial institutions that work their loan processing departments find the technique expensive and time-consuming. They must recruit and train a workforce, pay significant salaries and benefits, and obtain the necessary equipment.

Most mortgage outsourcing service providers, on the other hand, either charge fair prices or change their fees based on their needs. The outsourced crew has previously been trained and has experience in mortgage loan processing outsourcing. Infrastructure and staffing costs are significantly reduced because of this.

Ensuring Information Security

Outsourcing can also help financial organizations, particularly smaller ones, in information security. Smaller businesses often struggle to manage their information security effectively because it needs significant expenses. As part of their obligation and commitment to the client, the outsourcing partner provides information security.

Streamlined Process

Loan processors who are outsourced are highly competent experts. Financial institutions and lenders receive help from their holistic support in originating and funding loans and promoting stability and security as streamlined and simplified as clients. Business functions are becoming more efficient because of digitalization. On the other hand, building a digital infrastructure needs significant money and resources. Most outsourcing partners offer innovative technical knowledge and a digitalized framework that mortgage lenders could use.

Mortgage Lending Process Outsourcing Services

 

Mortgage Lending Process Outsourcing Services

Mortgage Lending Process Outsourcing Services

Diligent Mortgage Underwriting Support

Many lenders experience issues with their underwriting process, such as missing or insufficient information and poor underwriting productivity. Inefficiencies in the underwriting step can result in significant problems such as mistaken asset and income estimations, poor loan quality, and excellent denial rates. It can also result in a never-ending backlog of underwriting work.

Streamlined Mortgage Closing and Post-Closing Support

There are numerous inefficiencies in the loan origination process. These can have several negative consequences for a firm, including reworks, longer turnaround times, and a worse borrower experience overall. Lenders can automate their entire closing process by outsourcing their mortgage services. Automation can also help them standardize their procedures by reducing the number of submission checklists needed. These businesses may also design extensive process maps and do thorough quality assurance inspections.

Meticulous Title Support Services

The title to the property heavily influences the ultimate closure of a loan. Many factors like whether the title was claimed before or if there are any unsolved concerns must be checked. Title support services, such as title order, title inspection, title commitment, and final policy creation are provided by mortgage outsourcing businesses. They also include services such as title insurance, settlement, and closure.

Intelligent Appraisal Support Services

Lenders and mortgage brokers can use third-party help for complete appraisal support services as part of their mortgage outsourcing services. Thanks to intelligent analytics and innovative valuation technologies, mortgage outsourcing firms can deliver rapid and correct property assessment services.

Proactive Loss Mitigation Services

No one wants to lose money on a poor loan. From basic document processing to complicated operations like borrower outreach, mortgage process outsourcing services offer various loss mitigation services. Foreclosure aid, custom loan modification, short sale management, and other services are available.

Smart Mortgage Automation

Manual back-office activities and assistance are not the only things that can be outsourced in the mortgage industry. Mortgage outsourcing services also form the most up-to-date software and automated solutions for mortgages. Due to recent technological breakthroughs, various laborious operations, such as data extraction and validation have been automated. For example, automating mortgage loan origination choices can drastically cut turnaround times and increase client satisfaction. Mortgage underwriting automation can be done to collect data directly from the source. This type of intelligent automation can save a lot of time and money that would otherwise be spent on human data entry. Automating the collection of required consumer papers such as credit check reports and income statements from credit reporting bureaus can also help.

Magistral’s services on Mortgage Lending Process Outsourcing

We have created unique procedures for spanning loan origination, underwriting, closing support, and title support services with mortgage clients. We provide data encrypted services, including document fulfillment, originations support, underwriting support, appraisal, and loss mitigation services. These are explained below:

Creation of leads

In this leads are created for loan origination where key data from loan application is summarized, credit is processed and scored, rate quotes are locked and indexation of loan document is done.

Processing and Underwriting

Providing underwriting support, clearing loan conditions, conducting quality checks and auditing frauds if any, creating policy and compliance audits, verifying social security numbers, and disclosing all the information to the client are major steps under this.

Closing and Funding

After all the necessary information is communicated to the client, the policy documents are created by preparing the closing documents and assuring the quality check and file audits.

Servicing

This step includes the servicing part like loan boarding, auditing the new loans, pay-off processing, customer research, and resolutions, and finally, welcome calls are conducted for the mortgage client.

Why choose Magistral for Mortgage lending Process Outsourcing?

Magistral’s mortgage services help businesses develop robust operations, make better decisions, reduce risk, and unlock growth. For a smooth transfer, Magistral uses a unique and low-risk procedure. Business continuity and risk minimization are at the forefront of the process. The procedure is also intended to instill trust in the clients in Magistral’s ability.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is in Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

 

Introduction to Investors Database

An investors database is the list of persons who engage in investment activity and is used to create targeted marketing campaigns. Investors databases are created by various sources and are usually highly guarded due to their potential value.

People who want to access an investors database must pay a fee charged per entry. Rather than searching through the entire database, they can search by precise parameters, such as seeking investors in particular demographic groupings. The information that is available through a database of investors varies. Names and contact information, and information about investing history are supplied to generate a picture of the kind of assets that persons on the list are interested in accessing. Race, marital status, earnings, and other criteria can all be collected using databases. This data is obtained through surveys and other methods and can be used in several marketing efforts.
People looking for investors can use an investors database to create a target market and advertise to generate initial interest and get a venture off the ground. People looking for a particular type of investor, such as a philanthropist looking to invest in charitable causes, can use specialty products such as databases with high-net-worth investors. A list of investors who meet the search parameters will be provided, and the person could contact those investors as needed. Access to an investor database with complete access to all listed investors is possible, but it is usually costly. People usually need statistics programs and other tools to process all the database entries because viewing all the relevant information at once could be overwhelming. Because the original database proprietor does not want the product to lose value, individuals with complete access are often prohibited from reselling the data they buy.

Features of Magistral’s Investors Database

 

 

Magistral's Investors Database Features

Magistral’s Investors Database Features

Updated Data

Updating new quantitative and qualitative data is vital to the investor database. Constantly adding newer entrants to the database gives a competitive advantage for that database over its competitors while also providing satisfaction for the clients that have paid for the service. At any given point in time, multiple analysts update the Magistral’s investor database on an ongoing basis

Accurate Data

When choosing an investor database, accuracy is critical. The data is undoubtedly sourced from reputable global sources by a third-party data provider. Examples are government listings, company directories, trade shows, websites, top journals, opt-in email addresses, and other authentic data sources. Furthermore, obsolete data serves no purpose. The purchaser must check if the provider does routine inspections to keep the investors database clean and relevant. A comprehensive purchase-ready database can engage with important investment decision-makers and convert them into qualified leads. Magistral sources its information from all reputed sources and provides verified information.

Reasonable Pricing

When buying an investor database, price is critical. Some database providers offer data for free. However, the database may be limited or have data fields that are missing or outdated. As a result, when looking for an investors database provider, the cost should be considered while ensuring that the other services are available. Magistral’s investors database only costs a few thousand dollars and provides the best value for the buck.

Additional Services

Providing more customized services along with the database adds to the value of any Investors Database. Customized leads of General Partners, Limited Partners, angel investors, and other investors tailored to the needs are hard to come by. So, supplying them will be a huge bonus. When it comes to finding investors for the required business, the possibilities are endless. There will be much trouble categorizing the data, wasting time, and making the overall process take longer. As a result, a database solution should be looked to separate data based on the investor’s industry, investment type, and other factors. An investor database should categorize and answer these questions based on investment focus, types, earlier investments, and geographies. Having the categorized data allows to easily search the database for investors who are suitable for the company. Therefore, less time can be spent exploring data and more time on innovative marketing and fund-raising initiatives.

The custom search possibility should be available in the investor database. As soon as the target investor is found, custom search lets browse data at leisure instead of through each contact. An investor can be searched by name, by type from a dropdown menu, or by market and location, they often invest. A good investor list is received in seconds without searching through the entire investor database using a customized search.

Magistral’s investors database provides customizable search options. On top of it, it offers customized services for leads generation depending on the specific requirements of the clients

Magistral’s Investors Database Composition

Magistral provides thousands of leads from Limited Partners, General Partners, HNIs, and other investors from across the globe.

Composition of Magistral's Investors Database

Composition of Magistral’s Investors Database

A lead’s information includes their name, verified email address, phone number, company name, address, and investment mandate. Magistral’s investor database is extensive, and a single-user subscription costs $2500 with a 6-month access window. In addition, five hundred personalized leads are provided, specially tailored for requirements. A continuous secondary search on the internet and referrals and personal contacts are the key database information sources. A committed crew updates the database daily. The database follows GDPR, but the user must ensure that the information given to leads is relevant to them and the needed disclaimers. It is not a clever idea to bombard leads with information. Magistral’s investor database is looked after by the in-house staff, who work on various fundraising projects and find these leads. Because these leads have previously been used to generate funds, they are trustworthy. This database is also for customers on a tight budget who want to get started with the least amount of money necessary. These could be emerging managers or unfunded startups.

Additional Services offered with Magistral’s Investor Database

For the leads not in the database, customized leads at a competitive rate of $1/lead can be provided. The analyst can be contacted and asked for a customized research quote if more information about an investor is needed than what the lead provides. Magistral Consulting supplies numerous value-added services to its clients, several of which are listed below. These additional services should not be confused with Magistral’s investor database.

Fundraising and investors reach out support

-Help with marketing and communications

-Target company profiling

-Due Diligence

Within three weeks of formal sign-off, customized leads would be given. For all inquiries, the client will be assigned a single point of contact. Magistral can also be contacted through the database. The outputs will be delivered in MS Excel and MS PowerPoint formats.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

Introduction

By focusing on the fundamental variables that affect a company’s current business and prospects, the Equity Research and Analysis reflects the procedures used to estimate a security’s worth. It is the practice of analyzing the markets and companies to provide expert fund managers with recommendations on which stocks to buy. Equity research and analysis is the study of a company and its environment to judge the following:

– Whether to buy or sell its stock

– To calculate the price where one can bid for a target company

– To provide extensive financial insights and recommendations to investors on whether to purchase, hold, or exit a particular investment

Types of Equity Research and Analysis

There are three significant kinds of equity research and analysis explained below:

Economic Analysis

It entails evaluating or investigating subjects or concerns from an economist’s standpoint. This enables investors to examine the market from a broad perspective down to the individual stocks. Analyzing economic data may identify present market stability and understand the future.

Fundamental Analysis

Fundamental analysis is a method for finding a stock’s actual value. A stock’s current price may not accurately reflect its actual value. In the market, the stock might well be overvalued or undervalued. The fundamental analysis aids investors in determining the health of a company, resulting in the stock’s current value. This is accomplished by applying a variety of qualitative and quantitative parameters. The primary goal of this strategy is to find fundamentally sound organizations to make long-term investments in them.

Fundamental analysis examines connected economic and financial elements to determine a security’s intrinsic value. Fundamental analysts look at everything that can impact the value of a security, from macroeconomic issues like the condition of the market and industry circumstances to microeconomic elements like the company’s management effectiveness. The goal is to arrive at a figure compared to the current security price to determine whether these are undervalued or overvalued. Technical analysis, which forecasts the price direction by analyzing previous market information such as volume and price, is believed to oppose this stock analysis approach.

Discounted Cash Flow Analysis is a proven technique for fundamental analysis

Quantitative Analysis

It has to do with the information found in a company’s financial statements. It entails everything from collecting simple statistical information to doing complicated calculations. This study aids in determining investment possibilities, including when to purchase stocks.

Qualitative Analysis

It considers data that cannot be stated numerically. The factors usually included in the qualitative analysis are Management experience and performance, Industry and competition, and corporate governance.

Technical Analysis

Technical analysis is a study of patterns and statistical data to determine market trends and stock selection. It is a type of investment analysis that employs price and volume data, usually represented visually in charts. The charts are evaluated using several indicators to produce investing recommendations.

Importance of Equity Research and Analysis

The direct relationship between many local and global forces involved makes equity markets volatile. As a result, a better grasp of the equity market through equity research can help us better understand market changes and aid in the process of reaching our financial goals. As a result, equity research is fundamental, and the findings of equity research experts, from giant corporations to individuals who invest a portion of their assets in the stock market.

Equity research entails performing a comprehensive examination to determine the market value of a company’s stocks. Furthermore, it is used to indicate the probability of a rise or fall in its share price in a broader sense. It is common knowledge that the company’s expected financial results influence share price growth or fall over the next few years, and this serves as the analytical foundation upon which research analysts base their recommendations.

Importance of Equity Research

Importance of Equity Research

Because equity analysts interact with corporate management, they have a clear image of the firm’s current situation, and they have regular informal meetings with other research analysts, which allows them to propose a company’s position prudently.

These results will allow them to spot patterns in a company’s growth and fall, and investors will seek their advice, in general, to guarantee their investment goals are accomplished.

With the rise in volatility in the equity markets, decision-makers rely on equity research analysts who succeed at formulating premium equity research reports to measure the value of a company’s equity shares and try to decipher the likely future course of its fair price based on edging equity research report patterns. Along with the market for high equities research reports, there has been an increase in the demand for equity analysts to assess company fundamentals and advise investors on how to position themselves in its stock.

As a result of using top equity research reports or the expertise of a skilled research analyst, the investor would be much better equipped to make more cautious and educated equity market investing decisions. When done methodically and accompanied by research suggestions, equity investment can be considered a well-calculated risk that has shown to return many times for many investors.

Challenges in Equity Research and Analysis

– Obtaining data is the most challenging aspect of equity analysis. A large volume of data must be crunched in making informed market decisions, and the data quality supplied is crucial. The purpose of equity analysis should be to provide market information. Inefficiencies arise from a lack of information, resulting in stock misrepresentation.

– Technology is another crucial area as it is critical to have updated technology to analyze the financial data procured for equity analysis.

– Lack of capital is another factor that hinders equity analysis as it is equally important to have proper economic credentials to utilize the quality data and expert talent to analyze them.

Magistral’s Service Offerings in Equity Research and Analysis

Here is how Magistral helps its clients like Hedge Funds, Family Offices, Equity Advisors, and Other Investors in Equity Research

Magistral's Equity Research and Analysis Services

Here is how Magistral helps its clients like Hedge Funds, Family Offices, Equity Advisors and Other Investors in Equity Research

Fundamental Equity Research and Analysis

Fundamental analysis is the technique used to measure the stock’s intrinsic value. This analysis comprises customized models, quarterly earning reviews, earning call reviews, and equity and Industry themed reports which are further discussed below:

Customized Financial Models

Financial customized models are numerical representations of a company’s business throughout the past, present, and the predicted future. These models are designed to aid in decision-making. Company leaders could use them to estimate the expenses and profitability of a new project.

Discounted Cashflow (DCF) Modelling

It’s a method of valuation used to determine the present value of an investment based on its future cash flows. It helps to calculate how much an investment is worth today based on future returns. This can be applied to any investment or purchase of stock by company owners. It is a valuation method that can be used for private-held companies. DCF uses a discount rate to determine whether the future cash flows of investment are worth investing in. The discount rate is a risk-free rate of return.

Quarterly Earnings Review

A quarterly earnings report has been used to report results every quarter. Net income, EPS, earnings from continuing operations, and net sales are included in earnings reports. One can assess a company’s financial health and determine whether it is worth its investment by examining quarterly earnings reports.

Earnings Call Review

The information gleaned from earnings calls is used by analysts to conduct a fundamental study of the company. The company’s financial accounts are the starting point for fundamental research. Analysts will scrutinize these documents and listen to verbal indications from corporate management all through the earnings call. During an earnings call, analysts may inquire about main concepts or specific details in the footnotes, such as inventory and “less accumulated depreciation” sections.

Equity and Industry Themed Reports

It is in-depth research of a specific theme. Generally, themes are weighted differently for each sector. It identifies winners and losers in a single theme based on technology leadership, the position in the market, and other factors. It also improves the decision-making by a clear picture of fitting all stocks in a theme together.

Quantitative Equity Research and Analysis

It is the technique of using mathematical and statistical modeling, measurement, and research to understand the behavior of a particular stock. Analysts represent given reality in numbers. In data processing, cleaning and mining of data are done, and further, it is analyzed by correlation, regression, and various other tools, which are discussed below:

Data Processing and Analysis

Quantitative tools have now been routinely used to extract enormous amounts of data from several financial sources. To evaluate financial instruments, investment banks create equilibrium models; mutual funds use time series to identify risks in their portfolios, and hedge funds attempt to glean cues and statistical arbitrage through noisy market data. Quantitative finance’s ascent in the last decade is focused on creating computer systems that allow for the processing of enormous datasets. More quantitative finance research has shifted towards the microstructures of capital markets as even more data exists at a higher frequency. Data processing methods and quantitative frameworks are painstakingly constructed to efficiently extract information on financial data.

Commodities Performance Tracking and Analysis

Commodities go through cycles. When the supply of a specific commodity is scarce, prices will rise. Prices fall when there is an excessive amount of commodity in the market. Ideally, commodities that are performing at multi-year peaks or lows are viewed. The scenario tends to vary over time, resulting in a good trading opportunity.

Credit Equity Research and Analysis

Credit analysis is a form of financial research used to determine whether a company can satisfy its debt obligations. Credit analysis determines the proper degree of default risk when investing in a company’s debt instruments. Analysts perform a credit study on a company to determine its capacity to pay its debts. Following further analysis is performed to know more as explained below:

Country Risk Analysis

Establishing a country’s ability to transmit payments is known as country risk analysis. It considers political, economic, and social variables to assist businesses in making strategic decisions when doing business in a country. Every company transaction has some level of risk. Risks stemming from several national changes in the economic structures, policies, socio-political institutions, geography, and currencies are often referred to as country risks.

Company Risk Analysis

A company risk analysis assesses the likelihood of an unanticipated adverse event affecting critical company activities and projects. Organizations undertake risk analyses to determine when a negative consequence is likely to occur, the risk’s impact on a specific business sector, and where the risk may be minimized. In the worst-case situation, where an unexpected negative impact happens, a business analysis creates a control plan to return corporate operations to normalcy.

Reports and Newsletters

It is a strategic approach to creating and distributing valuable industry reports, indices tracking analysis, and event and news analysis. These are further discussed below:

Industry Reports and Indices Tracking

Industry reports are prepared using various tools, and further index trackers attempt to match the performance of a particular “index” of shares. It attempts to monitor the ups and downs of the index as closely as possible. It helps in choosing the better equity that is aligned with the index.

Event and News Analysis

An event study is a statistical method of evaluating the impact of a specific event or a piece of news on a company and its stock. A piece of bad news or event can bring the value of a stock down, whereas a piece of good news can bring the value of a stock upwards.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

 

 

 

Introduction

Portfolio Management for Private Equity and Venture Capital firms refers to the way in which the critical performance metrics are collected, measured, monitored, and tracked across the portfolio companies, and/or the active funds. Furthermore, such measures ensure that the capital is not subjected to excessive market risk. The capacity to make informed decisions underpins the entire process. Generally, Private Equity firms seek out underperforming or undervalued companies. By working with these companies, managers unlock significant value by:

– Improving business strategy

– Injecting managerial expertise

– Advance product technology

– Expanding distribution

Portfolio Management for Private Equity involves acquiring investment company ideas from a variety of sources and evaluating these to make an analytical decision. It is critical to rethink the portfolio regularly and practice the continual development of Portfolio Management methods.

Effective Portfolio Management for Private Equity leads to better IRRs for LP Investors

A PE or a VC firm invests in a company typically with 5+ years of the horizon. In early-stage investing, active management of companies to grow the valuation is imperative.

Even for late-stage investing, a well-balanced portfolio is critical in today’s world, as the perfect set of companies in a portfolio of private equity helps to grow. A good portfolio is a well-balanced combination of various companies, with funds allocated according to the firm’s tastes and risk tolerance. Building a portfolio is only the beginning of the task. In terms of returns and risk reduction, active management outperforms passive management.

Portfolio management is crucial because it reduces risk by diversifying and redistributing cash across different companies in the portfolio based on their performance. It also aids in the preparation of tax requirements. It also aids in the organization of money in times of need.

Factors affecting Portfolio Management for Private Equity

Private equity is undoubtedly a very competitive industry. It has been traditionally known for cutthroat business focused on cost-cutting and profit generation. This trend has slowly shifted in recent years. Now, Private equity looks for such companies in their portfolio which generate value over the long term.

Factors that impact PE Portfolio Performance

Crucial Factors leading to the success of a PE portfolio

Some of the factors which are taken into consideration in Private Equity portfolio management are:

Market Competitiveness and a Company’s Positioning 

The market’s competitiveness will significantly impact an individual company’s ability to achieve long-term success. A market with much competition offering identical items is likely to be less profitable.

Growth Potential 

Private equity firms are increasingly talking about companies where they would infuse both financial and organizational capabilities and industries that can accomplish growth in numerous ways.

Value Creation Potential 

The companies that operate in markets with untapped value creation potential are more attractive. Private equity firms prize the ability to minimize costs and increase existing capabilities for new revenue streams.

Low CAPEX 

If a company operates in a sector that will necessitate a significant amount of initial funding, a private equity firm will view this as an obstacle and will want to spend less for the company. In contrast, if a company already has the capital it needs to perform business and expand, a private equity firm would be willing to pay a higher price for the acquisition.

Regulatory Obstacles and Costs 

Regulatory barriers and costs could significantly impact the price of a company that operates in a particular sector. When making a bid to add a company to a portfolio, private equity firms recognize higher tax burdens.

Industry’s Most Recent Trends

The latest industry trends and possibilities for expansion have a significant impact on a company’s valuation. Companies that compete in the market can be more desired from private equity firms’ standpoint if the industry is predicted to proliferate, is considered particularly innovative, or needs a specific technological capacity that is hard to acquire.

Improving Private Equity Portfolio Performance

Effective project delivery and the ability to make modifications are key to improving portfolio success. It cannot be expected that projects that have been approved will produce the intended outcomes. Their worth, risk, and cost must all be assessed regularly. Projects should be discontinued or replaced if underperforming and have better alternatives.

Data analysis should be considered when making decisions. It is critical to collect ideas both internally and externally and choose the correct initiatives based on standards and statistics. Projects must be effectively managed. Methods, processes, and competencies for the project and program management must be improved, while clarity in project performance and risk need to be encouraged.

Improving PE Portfolio Performance

Improving PE Portfolio Performance

Portfolio Management is a continual activity, not simply an annual event, so planning should be done more frequently. The cost, risk, benefits, and coherence of authorized projects should all be reevaluated, with higher-value or lower-risk alternatives being considered

Technology’s Role in Enhancing Portfolio Performance

Better technology ensures that data from other processes, such as project, resource, and economic management, is timely and accurate. It also allows for the detection of underperforming projects and reduces effort and time spent on portfolio management tasks, allowing for continuous planning. It enables speedier re-planning when budgets alter, or new projects are made mandatory by providing analytic support in considering numerous ideas and projects simultaneously. It also gives process participants, stakeholders, and constituents access to reporting and transparency.

Role of Outsourcing

Outsourcing is the practice of hiring a third-party organization to carry out services that were initially performed in-house. The shift towards a customer-oriented business model resulted in outsourcing and therefore it became an important part of business economics in the 1990s. In only a few decades businesses realized in order to stay relevant in the industry, they need to focus on increasing the customer value of their services or products. Since then, businesses turned more towards the concept of outsourcing.

Outsourcing is even more critical for PE acquired businesses as they need to create value and savings quickly due to their investors’ pressure.

Here are a few fundamental benefits of outsourcing:

– Reduced costs are one of the primary advantages of outsourcing. These costs only arise when the process is ongoing, when these processes are not required, no bills are generated.

– Outsourcing partners are experts in their domain; therefore, they are quick and efficient in the organization’s process.

– Their expertise leads to increase quality and better results. They deal with the specific task with a matter of routine and precision.

Experienced outsourcing vendors provide cost savings with expertise, therefore it’s a better return on the company’s investment.

Magistral Service Offerings for Portfolio Management for Private Equity and Venture Capital

Magistral has helped multiple Private Equity and Venture Capital firms in managing their portfolio in the cycle of acquisition, value creation, and securing a profitable exit. Expertise when combined with Outsourcing brings quality and cost-effectiveness to the strategic decisions made at the portfolio companies.

Magistral's Portfolio Management Service Offerings for Private Equity and Venture Capital

Magistral’s Service Offerings for Portfolio Management for Private Equity and Venture Capital

So here is how Magistral helps:

Strategy

This is the most important part of the planning, which comprises the following:

– Identifying Add-On Acquisitions and Potential Buyers: Finding relevant M&A opportunities help in lowering the cost by merging the staff members with similar expertise, expanding into new regions, consolidating management and finances, and boosting the buying power.

– Planning Fund Raising Strategies: Here, a basic setup is made for fundraising such as LP research, LP reach out through calls & e-mails, preparing content, partner profiles, etc.

– Exit Strategy: Various exit strategies are made including a trade sale, which is the sale of a company to another PE firm, or a secondary buy-out for a medium or large portfolio company.

– Market Growth Strategy: Profitability, Growth, and Performance are the major objectives for Portfolio Management for Private Equity. Various strategies are formed to keep the portfolio growing.

– Content Marketing: This step helps in marketing the content for the acquisition of add-ons or potential buyers for private equity.

Analytics

The second major step involves analytics of portfolio management for Private Equity and Venture Capital. Analytics include the followings:

– Financial Reporting and Analysis: It is the process of documenting and communicating financial activities and performances over specific time periods. It depicts the financial health of the companies. This can be further done by performing trend analysis, common-size financial analysis, financial ratio analysis, and benchmark (industry) analysis.

– Preparing Dashboards: Various dashboards are prepared by cleaning the data, selecting the right chart, and building the perspective using predefined templates which helps in making a clear and better decision.

– Data Visualization: Information or data is then represented by visual elements like charts, graphs, and maps. It’s the most accessible way to see and understand trends, outliners, and patterns.

– Text Cleaning and Mining: Text cleaning and mining refer to artificial intelligence technology that uses natural language processing to transform the free text in documents and data into normalized structure data suitable for analysis.

– Predictive Modeling: It is a statistical technique using machine learning and data mining to predict and forecast likely future outcomes with the aid of historical and existing data. It works by analyzing current and historical data and projecting what it learns on a model generated to forecast likely outcomes.

– KPI Tracking: Key Performance Indicator (KPI) helps in monitoring performance metrics.

– Web Scraping: It’s the process of using bots to extract content and data from a website.

Sales

After analytics, the sale is taken care of by performing the following activities:

– List Generation: Final list is generated on the basis of various factors.

– CRM Cleansing and Management: It is performed to improve the overall quality of our data so that it increases the overall productivity of the portfolio.

– Competitive Intelligence: Competitive Intelligence research is the data gathered to know and analyze competitors. It helps in making better strategic decisions.

– Social Media Management: It helps in promoting the sales of a particular portfolio by the means of social media.

Financial Planning

Financial Planning while portfolio management for private equity is an important step as it helps in developing overall goals and creates a plan of action to achieve them. This step majorly includes the following:

– Budget Preparation: It’s a process of preparing an outline of planned future activities by making available funds, expenses, and future incomes into account.

– Forecasting: Historical data are used as inputs to make informed estimates that are predictive in determining the direction of future trends

– Competitive Quarterly Earning Updates: Final step is to make competitive earning updates.

Procurement

Its purpose is to develop a fully comprehensive picture of procurement. Following are the steps performed:

– Spend Analysis: In this, we analyze the past and projected procurement expenditure or spending for services or work

– Vendor Identification: In this, business requirements are identified and analyzed, and then developed to finally evaluate the vendors

– Spend Base Cost Reduction: This is performed to systematically boost productivity

– Category Strategy: It is an excellent tool that should be the procurement team’s work. It maximizes the value and efficiency

– RFP Support: RFP stands for Request for Proposal, it’s a business document that announces a project, describes it, and solicits bids from qualified investors

 Typical Outcomes of our Portfolio Management Services

– 30-50% reduction in cost operations

– Up to 20% improvement in sales for companies operating in B2B segments

– Up to 20% reduction in Procurement spend base

– Up to 10% improvements in gross margins due to advanced analytics

– 30-40% improvement in plan compliance

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to prabhash.choudhary@magistralconsulting.com

 

 

 

Introduction

Deal origination for Private Equity or Deal sourcing is the process by which investment firms identify opportunities. Larger volume deals are sourced to maintain a viable deal flow. Building a deal flow is the most important step because making good investment decisions is reliant on seeing many deals and selecting the best among them to pursue.

The effectiveness of the deal origination process ensures a healthy portfolio of investments that further ensures healthy returns to the Limited Partner investors. Hence its business-critical for a Private Equity firm to make sure the deal origination process works, and works well to meet the investment objectives.

Some venture capitalists, private equity investors, and investment bankers use various methods to source deals whereas some firms reach out to a team of specialists to help with the process of deal origination via outsourcing.

Deal Origination Process for Private Equity

There are multiple approaches to Deal Origination for Private Equity Firms. Some of them are

Traditional Outbound Approach

Here, the deal origination and sourcing largely depend on a wide area of personal networks, contacts, and the good reputation of the firm. Having knowledge of specific industries and the idea of similar deals taking place in the market is an added advantage for placing bids. This approach becomes successful only on the firm’s broad network of contacts, referrals, and a good reputation among founders. Firms compete against each other in process of bidding and their success depends on gaining specific industry knowledge. This typically leads to overvalued assets as all VCs and PEs are looking at the same deals.

Pros of outbound deals:

  • No matter how much things have changed but still the fundamentals of sales remain the same as they are based on human nature. And that makes outbound deals still very successful
  • It’s predictable and gives immediate results on the outbound process as it involves getting instant feedback from the prospective targets

Inbound deals

Inbound deal sourcing refers to all incoming leads, whether they come from existing relationships or unknown founders seeking investment. This is when a founder approaches the firm due to networking, good reputation, or word of mouth about the firm.

Pros of inbound deals:

  • Owners and operators are more likely to meet when they share a connection with you already
  • A shared network gives more knowledge which helps in creating more personalized interactions, giving a competitive edge
  • These deals move comparatively faster as introductions are warm and made only when seeking investments

Outsourced Approach

Traditional methods are nowadays giving way to modern online dealing platforms. Several financial technology companies help in deal origination for private equity firms and enable them to go beyond their network of contacts and source deals by reaching a broad audience on the basis of various criteria. Some parts of the investing value chain are outsourced to reduce operations costs while still maintaining quality and effectiveness.

Pros of Outsourced Approach:

  • Cost-effective
  • It casts a wider net of reaching out to target companies, that ensures exclusive deals that may help a Private Equity firm in delivering outsized IRRs for its Limited Partner investors
  • The deal pipeline continues to be populated in spite of multiple demands like new deals from the top management of the firm
  • The SOP ensures standardized elimination of targets not suitable to PE’s investment philosophy
  • Netting in the assets that are fairly valued

Magistral’s Process of Deal Origination for Private Equity Firms

There are various steps involved in the deal origination of private equity firms. These steps include Industry Research, Making SOPs, Evaluating, Ranking, and Contacting the shortlisted companies.

Magistral's Private Equity Deal Origination Process

Deal Origination Process for Private Equity

Industry Research 

This step focuses on taking out a list of companies that looks fit in terms of market position, competitive advantages, multiple avenues of growth, stable and recurring cash flows, low capital requirements, strong management team, favorable industry trends, etc. The inputs from research feed into the next step of SOPs

SOPs

This step is considered majorly after discussion with the clients, standard operating procedures (SOPs) are prepared in order to take care of the requirement of Private Equity clients while performing deal origination and deal sourcing process. A formal signoff is taken from the client once all the steps in detail are identified. Magistral performs this step for its clients without any cost to them

Evaluation

Various criteria are looked into while evaluating a target. Some of these are related to investors such as the investor’s ability to fund, if multiple investments can be made, if the investor has an interest in lead investing, his level of portfolio diversification, etc. The major part of the evaluation of the target is to ensure it meets the investment philosophy of the investor and is in a position to generate value over the investment horizon. The factors like industry, sub-industry, niche, management, team, past fundraising, strategy, marketing, finances, etc are evaluated for targets.

Ranking

On the basis of the above research, the analysts rank the various targets which best align with the investment philosophy of the Private Equity firm. The targets are ranked as per the suitability

Contact

 The final shortlisted investors are then contacted via mail or calls in order to close the best possible deal for a private equity firm. All the support required during the negotiations is provided as well.

Magistral’s Private Equity Deal Origination/ Deal Sourcing Case Study

The client and the business situation

A leading private equity company, investing in a broad range of markets such as energy, retail, and technology. The client wanted to deploy the capital to meet up its investment strategies and therefore wanted Magistral to find the best deals for the company at good valuations.

Magistral's Private Equity Case Study

Magistral’s PE Deal Origination/ Deal Sourcing Case Study

Magistral’s solution 

  • Magistral appointed a dedicated manager for taking the existing list of potential target companies, populate it further, and review them carefully
  • Standard Operating Procedures were made at no cost to the client to nail down the process to its finest details along with research and ranking methodology
  • A team of analysts started evaluating and ranking targets on different parameters already set out in the SOP
  • Shortlisted companies were contacted via call or mail and then the agreement was taken forward for all the documentation and deal negotiations

Outcomes

  • Within 6 months, the firm was introduced to more than 30 opportunities.
  • The effort resulted in detailed due diligence with two transactions that were quickly closed

Typical Outcomes of Magistral’s Deal Origination Services for Private Equity

According to a recent survey, 88% of private equity investors indicate their most important 2021 objective is deploying capital- a nearly 10-point increase from last year.

While working with Magistral, IRR is improved due to an exhaustive scan of the investible universe. There is approximately a 30-50% reduction in operational costs for target screening. Database costs are justified through rationalized services.

Over the years, Magistral has delivered multiple analyses that go into supporting and facilitating million-dollar global transactions. The team has so far worked with 200+ clients and facilitated transactions worth billions of dollars.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

 

 

Introduction

From Dutch East India company’s IPO to the largest IPO of Rivian, the Global IPO market as a whole has come a long way. There are multiple global IPO trends that are currently shaping it. The world’s IPOs raised $608 billion in 2021 with the technology and consumer sectors topping the list.

“An IPO is like a negotiated transaction- the seller chooses when to come public- and it’s unlikely to be a time that’s favorable to you” – Warren Buffet

As governments across the world announced covid vaccine programs and stimulus packages, the markets recovered in an unprecedented way.

There was a  worldwide surge in retail investors with active investor accounts increasing by a record 10.4 million in India. There were roughly six million Americans who joined the market by downloading retail brokerage apps. With favorable market conditions and high liquidity, 2682 deals have been finalized globally in the run-up to the IPO. There are many cases of IPOs where venture capital and private equity firms have made tremendous profits by exiting, which is called offering for sale (OFS).

Now the question arises “What’s driving the surge? why even after the pandemic retail investors are taking the risk? Why is there an increasing trend of Venture capital/private equity-backed companies getting a listing on the Stock market? what are the lessons that we can learn from 2021-the year of Investors?

Major Global IPO Trends

IPO trends that are shaping the global markets

Global IPO trend-“The Revitalization”

Massive covid-19 vaccines roll-outs, government stimulus packages, and welfare policies have acted as moral suasion for security and stability. The rebound of global economies with stable growth projections provided an impetus for the pandemic-propelled companies to grow. India has been ranked third in the world behind the US and China in terms of unicorns, disrupting the start-up universe. This clearly shows the growing importance of start-up investing as Technology IPO proceeds increased from  $54billon to $92billion with the Americas and Asia-Pacific the key markets.

Hottest Sectors

In terms of sector share, technology and health grabbed investors’ attention with a worldwide share of 21% and 14%( excluding SPAC IPOs) respectively. The fusion of technology and health would be a future, and investors would embrace it to stay relevant in the coming years.

Climate-focused tech start-ups are becoming increasingly popular with the ability to grow at a breakneck pace. Factors such as favorable government policies and public awareness of climate change are helping to mainstream the issue.

Diversity

Gender-lens investing(GLI) i.e investments in firms that are led by women, serve women customers or have a gender-balanced approach. The recent successful IPO of NYKAA is the perfect example of how gender-smart investing gaining momentum globally. According to the First round capital research, the founding team that includes both men and women gets stronger valuation growth than the all-male team.

Technology

With the successful IPO of Coinbase, there are companies across industries planning to accept cryptocurrency as the mode of payment. The biggest hurdle for the industry is regulations, once they are cleared investors can tap the trillion-dollar opportunity.

Hottest Regions

By region, the US had the largest share of global proceeds which was 57%. EMEA(Europe, the Middle East, and  Africa) had the highest relative year-on-year growth of 367%. In the Asia Pacific, there was a steady growth despite resurgent covid 19 waves in the region.

Even though there was geopolitical tension between the countries, there was a positive environment for IPO activities across many markets including the US, China, Europe, and this would remain the same in the coming years.

Global IPO Trends- The role of retail investors

Factors like increased isolation, lockdowns, more time for introspection, restricted spending, and more cash in hand are some of the factors that urged retailers to go for the investments that they had never done. Now, terms like IPO, Bull run, Startup, Investment, gross margin are being discussed in the family, all thanks to SharkTank. Fixed deposits or mutual funds are not the preferred mode of investment anymore.

With the restricted movement, increased digitalization, and use of social media for almost everything, there is a well-established ecosystem supporting retail investors in every possible way. A recent case of how Reddit users toppled GameStop’s share price is a perfect example of how social media can influence stock markets. Today’s generation is curious, ready to try new things, aware of the global trends whether it is for investments or Tiktok, and the only positive thing that came out of the pandemic is that people are now more mature, and they do not see profitability as the only factor.

Global IPO Trends- Venture capital and Private Equity-backed deals

According to the EY report, In 2021 – 33.6% of global proceed were the deals that are (were) backed by Venture capital and Private Equity firms with the USA having more Venture capital and private equity firms backing IPOs. The US and Europe had 56.5% and 41.1% of global IPO proceeds respectively. There was a slight increase in the cross-border global IPOs which accounted for 18.8% of proceeds in 2021 as opposed to 10% in 2020.

According to a McKinsey report, there was a growth of approximately 20% in the private market in 2021. Private equity remained the highest performing private market asset class.

With the buoyancy in the secondary market and new retail investors entering the market, Venture capital funds and PE firms benefitted the most as seen in the global IPO trend for Offer for sale(OFS).

There was $43.2billion worth of exits made through deals in 2021. Private equity and venture capital investments were 62% higher as compared to 2020 in India. With the booming start-up culture around the world, particularly in Asia, everyone is searching for new ways to invest, and private equity has emerged as the perfect alternative.

The future

The Key concerns are ongoing geopolitics, invasions, higher inflation, new covid variants, higher volatility, lack of knowledge of new-age retail investors. The businesses that sail through these would be likely to grab the investor’s attention.

Ecommerce and financial technology dominated the year, with consumer technology and digital media expected to take center stage in the coming years.

A mix of both technology and the health sector is going to be the center of attraction for years to come. There is a need for more climate tech start-ups like Rivain as climate change problems are here to stay if not dealt with properly. Sustainable mobility is seen to be the investor’s interest as of now. All the governments are changing their policies to become more favorable for electric vehicles.

The global crisis triggered by covid-19 has escalated the need for investments that are more gender-smart. The role of impact-driven investors would be of great importance for the global IPO market.

Crypto Economy is still quite volatile but gaining traction with companies like Coinbase-the largest cryptocurrency exchange in the US making way for others.

There are a lot of IPOs in the pipeline like Reddit, which will drive the growth. All we need is to have an impact-driven approach to counter the after-effects of Covid-19 and make a profit in the long run.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

 

 

Introduction

As the COVID 19 pandemic continued to threaten investor sentiments the PE industry was also affected by it. In an increasingly connected world, this is a fact given that the effect of changing trends in one part of the economy is bound to affect trends in another part of the world – a sort of chain reaction. The PE market saw a decline in 2021 in deal-making with the firms becoming more risk-averse and the focus being on stabilizing current portfolio investments.

However, the second half of the year 2021 started seeing more investments with the markets showing more resiliency regions like the Asia Pacific seeing a doubling of the number of investments as compared to 2019. Overall, $628 Bn worth of capital was raised in 2020 which was 20% less than that in 2019.

The dry powder had increased, with the amount swelling to almost $2 Trillion dollars which is close to a record all-time high. IT and healthcare were two of the major focus areas during this time.

Political unrest, the increased adoption of digital technologies, and the increased adoption of ESG are some of the key trends which have been shaping up the industry. This has forced the managers and PE investors to rethink their investments strategies. They have done this by steps such as looking at reshaping their current investment models as well as by relooking at their portfolio investments.

The key to survival in such a scenario is adapting quickly to changing market dynamics, adapting and acting quickly by taking into account the major trends shaping up the industry as well as thinking broadly and executing region and sector-specific strategies. One such example is the adoption of digital technologies so that the entire organization can be on the same page and be swift and nimble to market changes thereby becoming more operationally resilient.

To such an end this exercise would require one to rethink their mandate and investment strategy as well as their business operating models and methods. Greater involvement with key stakeholders and engagement with industry leaders is one such methodology to counteract the ill effects of COVID 19.

Technological changes in themselves is a megatrend impacting all sectors and investments

For us to understand how the Private Equity industry is being affected by the COVID 19 pandemic we must also understand other underlying dominant forces which are shaping up the world.

The Deep Tech revolution

One must have heard of the space race between Blue Origin and SpaceX. Space travel has become a reality and has captured the public imagination. This is one such instance that has seen a diverse and vividly imaginative and technically sound staff coming under one roof to fulfill its mission of space travel.

Quantum computing and the rise of Artificial Intelligence

With the achievement of quantum supremacy as announced by Google and IBM we are slowly but surely entering the age of super intelligence where experts foresee the end of classical computing and Moore’s law with classical computers being replaced by exponentially faster quantum computer cousins. It will soon find its way into automation of services such as credit approval, granting of loans, and automation of several banking processes.

Online security and online data protection

There will also be an increase in rule-breakers when it comes to the world of finance and hence online security and online data protection will be one of the services most in demand.

Cryptocurrency, Blockchain and the world of digital payments

As the internet penetration increases and with adoption and connection by leading technologies such as 4G disruptive services such as cryptocurrencies, blockchain, and digital payments will see a rise. This is evidenced and catalyzed by e-commerce and e retailing which boast of contactless payments to their customers.

Key trends shaping up the global Private Equity industry

It is important to understand the investment trends especially in the US which is the heart of the Private Equity and Venture Capital Industry. Investments by them in startups have increased over the last 20 years yet their rate of return has been below average or just above the average of major stocks listed in the stock markets (even though in the last 10 years they have outperformed the S&P index).

Viewed overall, this is a major problem for the US economy as it not only discounts the innovation premium on which US companies pride themselves but it also affects the investment sentiments of the investors at large.

With this in mind let us look at a few of the latest trends in Private equity investments

Increase in Mergers and Acquisitions

As compared to traditional IPO’s and funding for more traditional ways of organic growth, it is the Mergers and Acquisition route that the Private Equity firms are gravitating towards. One major focus area for this is the insurance sector and the major geographic area are countries like China and India as they ease the rule for participating in their domestic economies.

This trend by the PE/VC firms towards mergers and acquisitions rather than following the traditional IPO route is the primary reason why the returns from investments in startups have been on the decline.

Global Private Equity Trends

Global Private Equity Trends and its impact on PE returns

Focus on Special Purpose Acquisition Vehicles (SPAC’s)

A SPAC is a company that has no commercial operations of its own and has been raised specifically to raise capital through IPOs to acquire or merge with an existing company.

Just to get an idea of the volume of transactions involved, around $80 Billion worth of money was raised by 247 SPACs in 2020 and this amount went up to $96 Billion from 296 SPACs in 2021.

Lowering of interest rates

The decrease in investments activity has meant a fall in rates globally. The coming year 2022 is expected to show a rise in borrowing activity complemented by a not so rapid rise in interest rates.

The rise of the startup ecosystem

The startup ecosystem will be an area of continued focus which means increased investments in cities like the Silicon Valley and much closer to home cities like Bengaluru and Mumbai. However, PE firms are more likely to stay vigilant and go slow with the focus being on sound financial stability as well as relatively risk-free returns.

By June 2020 the number of Unicorn startups in China rose to 227 rivaling those in the US which had 233. The size of Global Unicorns is close to $2 Trillion which although huge means there is still scope of expansion in other geographies of the world.

Some of the global startups include the fabled FAAMNG (Facebook, Amazon, Apple, Microsoft, Netflix, and Google) which accounts for more than 25% of Standard and Poor’s total market capitalization.

Conclusion

The year 2021 has been a watershed year for us with the COVID 19 pandemic teaching us vital lessons. Companies have not only learned to respect uncertainty but also learned that they need to be nimble and agile when it comes to dealing with real-world situations. Hopefully, these lessons will be remembered by us for generations to come.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

 

 

Background

Decades ago, investment was done mainly through referrals or through knowledgeable sources like banks and private investment which was heavily based on the financial statement analysis of a company. The investors in the company were far and few. With no internet and adequate means of communication, investment or expansion of a company was a herculean task, then. Investors Database came into existence riding on the internet and information availability.

The world has now progressed to a stage where there are companies that are specifically dedicated to researching and providing access to investors’ databases. Although there are a plethora of options for startups or firms to raise money, there are very limited ones for Private Equity, Venture Capital, Hedge Funds, or Emerging Managers. Even if there are options, the prices for the same are prohibitive specifically for Emerging Managers who are on a shoestring budget.

Magistral’s Investors database

Our investors’ database is a collection of useful information about investors like LPs and GPs such as Private equity firms, Venture capitalists, Investment banking, Sovereign Wealth Funds, Family Offices, HNIs, and investment management firms. Each lead contains information such as their contact name, contact email, designation, company address, investment interests and specializations, investment geographies, and philosophy, etc. which is obtained mainly through sources such as secondary research, referrals, and personal contacts.

The purpose of the investor database is to facilitate the interactions between investors and business owners or Investment Managers and Limited Partners to invest in their firm or the fund. This can be done for multiple purposes such as seed capital funding, early-stage funding, expansion of business as well as late-stage funding in the case of companies. For funds, the obvious benefit is to close the funding rounds faster

Magistral consulting has a database that consists of General Partners, Limited Partners, Angel investors, and High Net Worth individuals (HNI’s) who have the resources and money available to invest in a business or a fund.

Problems with Other Solutions in the Market

There are various questions that one must answer before one agrees to pay for an investor database. Some of them are –

Costs: the costs associated with a database are large with some being as expensive as $30,000 to $80,000 for complete access. Costs are prohibitive for Emerging Managers.

Ease of Use: Very few players in the market allow for an easy-to-use interface for accessing the database

Excessive Information: Most of the information provided is not really relevant for a company. They need access to a limited number of resources.

Customized leads: Customized leads of GP’s, LPs, angel investors, etc. tailored as per your requirements are not easily available in the market. They have to pay for accessing the entire database.

Features of Magistral’s Investor Database

The database of Magistral consulting is exhaustive with $2500 cost for a single user license which has an access window of 6 months. In addition to these, an additional 500 customized leads are provided which is specifically tailored to suit your needs. So, for example, if you are looking for investors in Latin America in the specific domain of real estate specifically, these can be researched and given access to customized leads.

In addition to these is the fact that these leads are researched and updated on a daily basis by a dedicated team of analysts so that you can stay up to date with the latest list of investors in the market.

A simple, easy-to-use interface offers ease of use without any technical support required.

Magistral consulting offers a list of over 5000+ general partners, 3000+ limited partners, 1000+ angel investors, 3000+ other HNI’s across the geographies of the United States, United Kingdom, Europe, India, and the Rest of the World.

A snapshot of sample data is given below:

Database Sample Data

Sample Data from the Database

Frequently Asked Questions (FAQs)- Magistral’s Investors Database

What type of investors are there in the database?

The database contains 25000+ leads of international Limited Partners and General Partners

 

How do I search the database?

It is very simple. You are given a user id and password and you can access the database immediately upon receiving the login credentials.

 

What investor information is provided in the database?

Following are the fields of information that are provided upon accessing the database.

Company name, company type (family office, private equity, venture capital, etc.), name of the investor, email id, LinkedIn id, company address, and the industries they invest in.

 

What is the source of information of the database?

The primary source of information about the database is a continuous secondary research on the internet as well as referrals and private contacts.

 

What is the frequency of updating the database?

The database is updated on a daily basis by a dedicated team

 

How much does it cost?

It costs $2500 for a single-user license which is valid for 6 months. Customized leads are provided in addition as a value-added benefit to our clients.

 

Can I trust the database?

Yes, you can trust the database wholeheartedly as these are well researched by our internal team.

 

Do you introduce the investors as well to the contacts I find?

No, as a practice we don’t introduce the investors to our clients. However, there are several value-added services that Magistral consulting offers to its clients, some of which are given below. These are separate from the investor database.

1. Fundraising and support

2. Marketing and communications support

3. Target company profiling

4. Due diligence

These are just some of the services that Magistral offers to its clients. For more details, drop a line at https://magistralconsulting.com/contact/

 

Can I download the data?

No, you cannot download the data. However, as mentioned earlier it is very easy to access. It is just like accessing an email or a web account where an account has a user id and a password.

 

There is a demo video for viewing how the database works available on youtube.com. Given below is the link given for it.

Link: https://www.youtube.com/watch?v=33tY_v737P0&t=16s

 

What are customized leads?

Customized leads are leads that are domain-specific or country-specific etc. which are provided on request. Say for example if one requests for real estate investors in Brazil, this can be provided upon request. This means 500 additional leads are given over and above the leads which are already present in the database.

Process of accessing the Magistral’s Investors Database

The process of accessing the database is given below.

Magistral Investors' Database Process

How to get access to Magistral’s Database?

Delivery and timelines

1. Database username and password would be sent to the client within 48 working hours after receiving the payment.

2. Customized leads would be delivered within 3 weeks from the date of formal sign-off.

3. The client would be assigned a single point of contact for all queries. The client can also contact Magistral through the database.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

The article is an effort of the Marketing function of Magistral Consulting. For any business inquiries, you could reach out to prabahsh.choudhary@magistralconsulting.com

 

 

ESG – An Introduction

With increasing changes in business needs and businesses tuning onto global trends like climate change and responsible corporate social responsibility, ESG Investing has emerged as one of the hottest trends in corporate parlance and governance. Its imperative then it is considered while making investment decisions aka ESG investing

ESG stands for Environmental, Social, and Governance. It is a non-mandatory part of financial reporting. But as it stands out, to differentiate itself from others as well as the need to project itself as a responsible company with a truly global outlook more and more companies are incorporating them in their financial reports.

Although much needs to be done on this front, there are bodies like the Sustainability Accounting Standards Board (SASB), Taskforce on climate-related Financial Disclosures (TCFD), and Global Reporting Initiative (GRI) that have taken on themselves the onus of setting standards and benchmarks for the companies to follow through. The oldest framework of course is the GRI which has been adopted by more than 13,000 organizations in more than 90 countries.

The market for green bonds has boomed. According to a report by Climate Bond Initiative green bonds are set to reach $400 Bn to $500 Billion in 2021 which is nearly double than that in 2020 when its value was $270 Billion.

According to BAML, 90% of bankruptcies in the S&P 500 during the period 2005-15 were of companies with low ESG scores.

Not only big companies but this is also bound to have an impact on how institutional investors decide on their investment targets.

Emerging Trends in ESG Investing

Global sustainable investment is now more than $30 Trillion which is a tenfold increase in spending since 2004. The coronavirus pandemic has further led to much unrest and the onus is now on the companies to create a resilient, sustainable, and responsible organization.

To illustrate the above factors, let us for instance focus on the trending issue of climate change which is a pressing environmental concern. Climate change is a challenging global problem and it requires us to think in different ways in not only understanding the key problems but also think in different ways in how we can reduce greenhouse emissions. It requires adapting not only new technologies but more importantly a human mindset whenever we try to address this problem.

Similar is the case with social compliance. As the world diversifies into a seemingly single entity where the borders between nations are blurring. So, is the pace of change in organizations where key studies in organizational behavior and strategic human resources management are compelling one to take a different view of how organizations should operate. Since the times of Peter Drucker and his theories on management, it has but become imperative to adopt these management concepts in a manner that not only broadens the viewpoints of the individual but also of the organization at large.

Although there are several ESG frameworks in practice, for simplicity’s sake a sample ESG framework has been given below.

ESF Framework

ESG Framework

Companies are benchmarked on these standards although there are more standards to abide by. Each ESG framework allocates a different criterion and scorecard based upon which the companies are rated and then an overall score is provided.

Impact of ESG on Business and Investing

There are a few major points that affect how business functions when it comes to ESG factors influencing them.

1. Company reporting – As discussed above we are still in a working stage when it comes to industry benchmarks set by boards like SASB, TCFD, and GRI. Hence, the companies who comply with their norms are more likely to have the first-mover advantage and consequently be viewed as long-term responsible companies both in the eyes of the clients as well as the shareholders.

2. Impact on investor analysis and decisions – Investors rely on a mix of internal and external data when it comes to making decisions as to investing in a particular company. In fact, there are ratings provided by companies like Magistral consulting which help investors in decision making.

3. Responsible investor reporting – An increased ESG compliance gives companies a key advantage in regions such as Europe which are looking to adhere to the new standards. Besides it is a matter of time before these standards become a norm rather than a guideline

4. Improvements in productivity – Significant cost reductions and operational efficiencies are achieved by companies that have adopted these frameworks.

5. Better resource utilization– ESG frameworks adoption ensure better long-term utilization of resources (eg. plant and machinery) when considered over a long term

6. Increased environmental awareness among consumers– Thanks to climate change becoming a hot topic in the recent decade, consumers have now become more socially aware and more than 65% of them are willing to pay a premium for “green goods”

7. Greater employee productivity – When employees look at a company that is committed to environmental and social causes as well as following good governance practices it has been observed that companies see greater loyalty as well as ownership among its employees simply because the company cares for issues that are over and above itself

A pertinent question to ask is how does it affect sectors like private equity and hedge funds? The answer is that they are more likely to invest in companies with ESG compliance especially after the aftermath of the COVID 19 pandemic. They have started to incorporate ESG factors into their decision making which is why they have invested close to $21 Billion into ESG focused funds in 2019 alone.

According to a survey business ethics, bribery and corruption and occupational health and safety were the top 3 factors when it came to private equity investments with more than 80% of respondents citing it as the top factors. Other factors included waste management, employee development, and talent attraction and retention.

A sample ESG scorecard: A sample ESG scorecard of Magistral consulting is given below to show how ESG is benchmarked and rated.

Magistral's Sample ESG Scorecard

Magistral’s Sample ESG Scorecard

The best way to incorporate ESG in investing decisions

Though ESG and its impact on investments are growing exponentially, it’s still a relatively new development. Expertise is limited.

If one is interested in incorporating principles of ESG in investment decisions, the best way to go about it is by outsourcing the research and analysis process to an expert service provider like Magistral

Magistral not only brings years of expertise in evaluating investment opportunities from an ESG lens, but it does also so in a very cost-effective way by combining expertise with outsourcing to locations where the assignment could be delivered cost-effectively.

The result is more robust investment decisions with savings in operations costs!!

Why Magistral consulting?

Magistral consulting offers solutions in the following categories –

ESG policy and frameworks- Magistral consulting ensures that appropriate ESG policy and frameworks are applied to the company as would best fit their requirements.

Target company due diligence (financial, operational, and ESG)- Performing adequate due diligence not only in terms of financial but also ESG compliance standards.

ESG scoring, rating, and benchmarking—A value-added service where companies are rated and scored as well as benchmarked as per the standards laid out in the ESG framework.

ESG compliance monitoring- Magistral consulting also ensures that not only are companies benchmarked as per the standards laid out in the ESG framework but they are also following the norms once it comes to the day-to-day running of activities in the organization. This is what is called ESG compliance monitoring.

About Magistral consulting

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

The article is an effort of the Marketing function of Magistral Consulting. For any business inquiries, you could reach out to prabahsh.choudhary@magistralconsulting.com

 

Introduction

Markets are overheated. Funds are being launched. Series A has now touched $50 million to start with for even pre-revenue start-ups!! In these frenzied times, the experts of fundraising are in demand. Magistral’s fundraising support services could be used at a fraction of the fund, to close the fund faster and in full.

Magistral Fundraising Support Services

Magistral fundraising support services help clients reach out to Limited Partners, General Partners, Asset Managers, and Business Decision-makers for business development support.

Investors Reach-out for Fund Raising

Types of Investors Reach-out for Fundraising or business

Limited Partners Reach-out

In this, the Magistral team generates the leads for Limited Partners, i.e., Family Offices, Sovereign wealth funds, pension funds, Treasury offices, Universities, etc. This list is then used to set up meetings with our clients who are General Partners like Venture Capital, Private Equity funds, or for service providers like Investment Banks and brokers.

Each lead comprises the name of the individual, their email IDs, firms’ names, links to their profile, their investment expertise, past investments, office address, websites, and board phone number. This information is then used to set up meetings with the client. Once the meeting is set up, Magistral gets out of the way for both parties to negotiate once the meeting is set-up

Once the reach-out for investment in a specific fund is done, further steps like CRM updation, design, and distribution of newsletters are devised to keep the leads warm

 

General Partners Reach-out

In this scenario, we are hired by Startups and established firms to raise funds from Private Equity or Venture Capital firms. Here the leads are generated for the PE or VC firms that specialize in the given industry. We reach out to investors specializing in SaaS, Healthcare, Tech, and several other industries all the time. The leads carry information like the name of the individual, email IDs, phone numbers, websites, investment specialization, past investments, etc. These leads are used to set up meetings with our clients. There is an efficient online tracker to see the status of each lead and where they are in the fundraising journey like the first meeting, second meeting, NDA signed, LOI signed, etc. The tracker also records the meeting notes and next steps

Reach out for B2B Business Development Support

If investors like Private Equity, Venture Capital, or Family Offices have B2B companies in their portfolio, and they have a board seat or get involved in active management of the firm, it’s imperative to focus on business development. Business development bumps up the revenue and enhances valuation. Magistral has been of help to investors in these situations too. We generate B2B leads in specialist industries. We also go a step further and try to set up the meetings for the business development teams. The support is also offered in design-related services like brochures, introductory materials, and presentations, etc.

Asset Managers’ Reach out

This forms the backbone of our operational support services to LPs like Family Offices or Fund of Funds, and Investment Banks that specialize in managing clients’ money. Here the reach-out is done primarily to collect all the documents for effective due diligence on the performance of funds. So specialized asset managers are reached out, all their performance documents are collected and then analyzed on metrics of risks, returns, volatility, etc. to arrive at a set of recommendations for the client.

Magistral’s Investors’ Database

At the heart of our fundraising efforts is our proprietary database of investors. We hit our database as a first step to raising funds. This database has been prepared and updated with the information that we have acquired from years of experience in fundraising for GPs, start-ups, and other firms. It has currently 25,000 + leads of General Partners and Limited Partners based out of the US, the UK, Europe, and India. This is also offered as a separate product to clients who are interested in fundraising at very competitive prices.

Rather than carrying a plethora of information on investors, most of which is anyway useless, Magistral’s database carries only the information that is useful for fundraising. That information is the leads of investors, their interests, their investments, and how to reach out to them. We keep it that way so that we could provide to our clients, what they need at an affordable pricing point

Here is the demo of our database.

Magistral’s Fundraising Package

Magistral can play a critical role in all stages of fund-raising. It offers its services as a package.

Magistral's Fundraising Package

Elements of Magistral’s Fundraising Package

These services are

1. Fundraising Documentation: Whether you are a GP, a start-up, or an established firm looking to raise money, the first step is to finalize the documentation. These are the standard three documents which are Pitch Deck or PPM/CIM, Valuation, and 1 pager teaser. We prepare these documents at a lump sum fixed cost, with all the iterations taken into account. The service also includes polishing of the material, to make sure it is brand consistent and meets the global standards of marketing and design

2. Magistral’s Investor Database: Once the documentation is done, the next step is to reach out to investors and start setting up the meetings. Magistral’s investors’ database is the tool designed for this step. You could get the investors’ coordinates and write to them directly. If you can choose investors from all across the industries and geographies from its record of 25k+ investors. In case you still think you are super-specialized and would need far more niche investors, a customized lead generation of 500+ leads are also offered as a top-up

3. Specialized lead generation: For certain occasions like B2B business development, a specialized lead generation campaign is taken up

4. Analyst Support: For reaching out to investors, or for documentation or for attending meetings, taking notes, and taking care of the next steps from meetings, if you need any analyst support, that could be offered as well, which provides a flexible and cost-effective option to hiring onsite.

Magistral is Not a Broker-Dealer

Whenever we present ourselves as fundraising experts, we get inundated with broker-based assignments. There are several reasons we don’t get into commission-based variable arrangements. These are

1. The upfront investment of efforts: There is an upfront investment of efforts on our part for every assignment that we take up. This is either in the form of understanding the opportunity, refining the documentation to suit the need of investors or simply reaching out to investors. We can’t support any opportunity and put upfront investment specifically in the case where there has been no working history

2. Impartiality of our recommendations: We work with both GPs and LPs. We don’t want to take any opportunity to our GP and LP clients, where we have commercial interests in the form of brokerage fees. We pride ourselves in presenting the best opportunities that are carefully evaluated for fitments and returns for our clients. That is only possible if we analyze the opportunity impartially without any commercial interest.

3. Brokerage Fees: We are paid to bring in the money. Wonderful!! But who pays this money? This is one of our clients, who loses 1-5% of the investment right from the go!! We don’t think that goes well with our values.

4. Too many unreliable players: A brokerage-based arrangement could be offered by anyone in the market. They have no skin in the game. They are just evaluating the options out there. We don’t want to get involved in any deal with any asset manager that has no previous track record and is unreliable. If you yourself are not ready to invest a few thousand dollars in your idea, how do you want us, to get you millions?

5. Magistral is not in a position to negotiate: The legal responsibility and the negotiation is dependent on the parties involved. Magistral is just a service provider. Even if we do our best to get you, investors, there is no safety mechanism for us in case you start putting up conditions that spoil the deal. All our efforts are wasted and we would have lost the trust of another valued client

6. Lack of licenses: We don’t have any broker-dealer licenses and we don’t want to get into that business

 

All our services are retainer-based and after a successful round of fundraising, the fees work out to be a very minuscule part of the fund. We will not sign any success-based fee arrangement with a client, we have no working history with.

 

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

Introduction

Multi-Family Offices are specialist wealth managers who invest on behalf of their clients that are usually family offices. Due to multiple macro changes in the global economy, the pandemic, in particular, now MFOs are toying with the idea of outsourcing. Multi-Family Office Outsourcing for Operations in itself is an area that is still evolving. The scope of outsourcing is being broadened after the pandemic to save costs and improve the operational quality and reliability

In the article, we talk about the scope of outsourcing possible, without bringing down the quality of your engagement with your clients. We will also talk about the risks of the outsourcing process and how Magistral takes care of it.

Multi-Family Office Outsourcing- What could be outsourced?

There is nothing like “safe” or “unsafe” outsourcing. The scope of outsourcing depends on the capability of the vendor, repeatability, and replicability of the client processes, and the relationship and trust between the vendor and the client. Trust-building is a slow process with incremental value addition from vendors with reliable performance over a while.

Multi Family Office Outsourcing Activities

Type of jobs that could be outsourced by MFOs

Still, the things that could be outsourced to different extents are following:

Investment Analysis

A major part of the Investment Analysis that is done by Multi-Family Offices could potentially be outsourced. Major ones being:

1. Fund Analysis: If you are investing in a hedge fund specifically long-short equity, that requires regular evaluation, then outsourcing may present a viable opportunity. The experienced vendor has set templates to benchmark a fund with global indices and coming up with all the performance indicators related to Risk, Volatility, Returns, Sharpe Ratio, Sortino Ratio, and a host of other commonly used indicators for the fund evaluation

2. Direct Investments: MFOs do invest directly in companies that they are convinced have a promising future. In this case, outsourcing could help you with Financial Modelling, Due Diligence, and preparation of Investment Memorandums and Pitch Deck

3. Financial Modelling: Financial Modelling, not only related to valuations of the companies that an MFO wants to invest in, but also Real Estate, Sum of Parts Analysis, M&A Analysis, Comps, and several other models are templatized with the vendor and since its being done for other clients too, it could be produced efficiently in terms of costs and time and with reliable quality

4. Private Equity and VC Funds’ Due Diligence: Magistral evaluates multiple PE and VC funds for investments by Single or Multi-Family Offices. We look for the track record of Founders and Partners, their portfolio, unicorns, exits, industry focus, geographic focus, and the reliability of expected returns that the funds promise

5. Fundamental Analysis of Stocks: Equity Analysis is a standard feature that many outsourcing vendors offer. It is analyzing the stocks’ capability to generate positive returns in the future

6. Crypto and Crypto-based Funds: Crypto has grown at an outstanding pace. FOMO is leading to all Family Offices adding this to their portfolio either as direct investments or in the form of a crypto-based fund. Magistral provides the financial model and due diligence for specialized investments like Cryptocurrencies and blockchain-based products and companies

7. Real Estate: Magistral also supports Family offices that specialize in Real Estate investments through services like valuations, comps, tracking and analyzing ETFs, preparing Pitch Decks and PPMs.

Investment Analysis for each client is unique and sometimes complicated. Magistral has helped 30+ family offices in outsourcing their investment analysis process and is well versed with all the operational areas that could be effectively outsourced.

Marketing and Investor Relations

The marketing and Investor Relations processes at multifamily offices are usually repeatable and templatized. These processes along with the research that goes into them, are obvious candidates for outsourcing. The following activities could potentially be outsourced without much loss in terms of quality or time and make for ideal candidates of Multi-Family Outsourcing candidates

1. Newsletters: Newsletters are a common occurrence in the Marketing functions of Multi-Family Offices. These are usually outsourced anyway if they are not too niche or specific

2. Reports: Industry Reports, Geography Reports, or other PoV materials that are prepared in marketing to further the investment thesis and differentiation is better done outsourced

3. MIS: MISs for internal stakeholders and investors are outsourced. These are usually delivered in Excel with or without Macros, PowerPoint, PDFs, and word. Sometimes data is pulled from specific databases like Pitchbook or tools like Addepar to prepare these reports

4. CRM: Management of the whole CRM systems for leads updation, investor reach out and content development is something that is better done outsourced

5. Research: Research is required to fine-tune the investments’ pitch and to prepare the reports. If reports need to carry a knack that’s very specific to a firm and can’t be outsourced, the research for the same is the next viable candidate

6. Portfolio Reporting: Portfolio and its valuations are reported sometimes as frequently as weekly and most of the time monthly. The whole process of preparing the valuation for different instruments in the portfolio like Hedge Funds, Direct Investments, PE and VC Funds, Real Estate, and other specialized investments is first understood by an experienced vendor and then gradually shifted offshore.

Operations

What comprises operations is different for different firms. Mostly lots of data-heavy lifting related to portfolio forms the bulk of operations. Depending on how it is defined, there are multiple activities that could be outsourced. In the Multi-Family office outsourcing scheme of things, these activities take the most time to outsource effectively

These are:

1. Data Collection and Automation: In a heavily invested Multi-Family Office, data is flowing related to multiple direct and fund-based investments. This data needs to be captured and analyzed. Sometimes there are specific strategic initiatives that are proprietary and need data analytics and research like coming up with future successful investments by analyzing the past ones. These initiatives have a good potential for outsourcing. In the past, Magistral has helped its clients automate the data collection process, preparation of reports, and data visualization on tools like Power BI and Tableau

2. Data Updation: Depending on the platform that a firm uses for capturing the data, the data needs to be collected and recorded for analysis and reporting. Sometimes it’s automated tools like Addepar and sometimes it’s just a host of excel sheets talking or not talking to each other. Irrespective of the platform, data needs updation regularly and that is something better outsourced for cost and time efficiencies

3. Data Analysis: Putting all the data collected or recorded through formulas and making sense out of it is the analysis part. Analysis shows whether an investment is right and whether the portfolio is on the expected track to make returns. Data analysis depending on whether there are set templates and their repeatability could be easily outsourced.

Risks associated with outsourcing

Everything is not hunky-dory when it comes to outsourcing MFO operations. There are multiple risks that clients face while outsourcing. These are:

1. Not enough savings: Global firms that offer outsourcing at scale are more reliable than small or medium-sized outsourcing players, but their price quotations come very close to the onsite hiring and there are not enough savings to warrant the risk.

2. Attrition in the FTE model: Most outsourcing companies operate on an FTE-based model, where you hire offshore a virtual employee to save costs. The client puts in time and efforts to train a particular resource, just to realize that the employee decides to leave to pursue a career elsewhere, taking with him months of efforts

3. Lack of skills: There are many outsourcing vendors out there in the market but there are very few who understand the multifamily office business and its challenges. It will be difficult to scale your outsourcing with such vendors

4. Operations disruption: While outsourcing, if the whole step backfires, there may be irreparable damage to the operational continuity and the firm’s reputation.

Magistral counters all these risks with its well-laid out Multi-family office outsourcing process with proper checks and balances. This process has been tested out with more than 30 Single and Multi-Family Offices across the globe.

 

Magistral’s Proprietary Process of Multi-Family Office Outsourcing

Multi-Family Office Outsourcing at Magistral is a 4 step process that minimizes the vendor performance risk for the clients. Here are the details

Magistral's Outsourcing Process

Magistral’s Outsourcing Process counters all the traditional drawbacks of outsourcing

Pilot process

Before deciding on whether the whole process needs to move offshore, the client starts with a small pilot project. We are also not in a hurry to push the big-ticket purchase, it’s because we are confident that clients will eventually find value in our performance and stick with us. So a Pilot project starts, quotes of which are very competitive as it’s quoted on “No profit-No loss” basis by us. The client gives us a small project and tests the various aspects of offshoring firsthand. These aspects are quality, communication, engagement, connection, technical expertise, billing, and other softer aspects of the engagement.

Proposal and Engagement Model

Once the pilot is successful, the client journey moves to decide on the overall broad contours of the engagement. Magistral submits a proposal with commercials, project plans, CVs of resources, the scope of work, methodology, etc. Once that gets signed the wheels finally start to roll. The engagement models offered by Magistral suit multi-billion dollar asset managers as much as it does to a one partner company.

Standard Operating Procedure

Magistral after the signing of Proposal or Letter of Intent gets down to the knowledge transfer process. It comprises detailed interviews with client stakeholders. All the information received from clients’ stakeholders is put in a standard document called SOP. SOP is helpful while training a new team. It’s equally helpful while a team member leaves and a new one joins for a quick knowledge transfer. It is updated regularly and is the bible of all the operational details and know-how.

Knowledge Transfer, Project Stabilization and SLA Reporting

Once the project goes live, it doesn’t do so in a big bang, all once at a time way. Workstreams are offshored gradually. Easier, repeatable processes are offshored first, before the complicated ones requiring complicated decision making. Once the team is stable, we start reporting MIS that carries our Service Level Agreements compliance. A few examples of our SLAs, 100% adherence to the promised timelines, more than 95% availability of the analysts, and several others depending on the scope of the project.

 

Magistral is a specialist when it comes to Multi-Family Office outsourcing, across the globe in outsourcing various aspects of their operations. Its costs are competitive as it’s small enough not to have overheads that don’t add any value to clients and still big enough to have the capability of servicing a global MFO well. To schedule a conversation with a Magistral representative drop in a line here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

 

Introduction

The business of Venture Capital funds depends on the targets it invests in. The more the chances of its portfolio companies hitting a moonshot, the more successful the fund is in general. Venture Capital Due Diligence is a process that ensures the appropriate targets are locked in at the seed or early stage to ensure 50-1000X returns in a 5 to 10-year horizon.

The way a VC fund looks at a target is fundamentally different from how a Private Equity or a lender would look at it. A VC fund looks for that one silver lining that can make a portfolio company a roaring success. PE firms mostly weigh pros and cons and generally invest if the Pros outweigh the cons. A lender analyzes if anything at all could go wrong with the company and may jeopardize its investments. Different objectives of investment require different lenses for analysis.

Challenges regarding Venture Capital Due Diligence

VC firms invest in small firms, primarily start-ups, often only at the idea stage. The biggest challenge for due diligence, in this case, is the availability of data. When the idea has not shown any traction, the research needs to be more outside-in. That is finding out the market information and if any customers may be willing to pay for such services of the potential portfolio company. If there is any traction, then the analysis needs to be both outside-in and inside-out. An inside-out investigation is more towards getting into the details related to the operations and finance of the company along with the opportunity that the market offers.

Another challenge is to keep the deal pipeline active for multiple due diligence exercises to happen. Due diligence can throw numerous red flags. If there are various deals in the pipeline, a VC fund can walk away from the opportunity till they get into the company that justifies investment in terms of money and time. Many VC funds park small amounts with the companies they know or are from their circle of friends and family. That biased approach would result in sub-optimal results in the long run. Deals found from networks or events are usually the hot deals that others are also evaluating. That leads to FOMO (Fear of Missing Out) on the part of VCs and hence the overvalued assets.

Advantages of Outsourcing Venture Capital Due Diligence

The advantages the outsourcing brings are numerous like it saves costs, resources are available on-demand and there is a certain specialization with the vendor who works with multiple VC firms, which raises your own investing game.

However, when it comes to outsourcing, there is always a lingering threat in the minds of asset managers. Will the quality be any good? Or what if the deal gets outed due to many individuals knowing about it? Or do they even understand it, ours is anyway a specialized investing or a niche industry?

Challenges around Venture Capital Due Diligence Outsourcing

It is easy to make a business case for outsourcing on an excel sheet, where it can produce 30-70% cost savings while in most cases improving the quality of due diligence. However, concluding everything is hunky-dory with outsourcing is far-fetched. Here are the top challenges with outsourcing venture capital due diligence

There are way too many generalist research and outsourcing players out there, who offer to do research, list generation, and make company profiles, but most of them lack a deep understanding of how VC investing works. There are very few specialist VC research players. Magistral is one of them

VC itself is a new and upcoming industry. In the US alone in the first 8 months of 2021, the number of unicorns created has crossed the number of unicorns ever created in the history of VC investing. That is the acceleration. Though outsourcing provides the access to talent that can deliver, you can be assured the talent itself is half baked, purely due to the massive acceleration that this industry is witnessing

Even the outsourcing home country is witnessing the talent crunch. For example, India itself lacks VC talent and there is a huge demand for trained resources. In a typical FTE-based outsourcing model, it is very possible that you train someone offshore in your diligence processes and he is poached by the competition, leading you to train offsite resources again and again and again. It’s a massive headache

VC investing is more of an art than an exact science and some of the DNA of VC investing is very difficult to outsource.

Magistral’s proprietary process aims to do away with the shortcomings related to Venture Capital due diligence research outsourcing.

Before we dive into the Magistral’s process, here is how we evaluate targets. The things that we analyze closely to ensure the target you invest in has the best chance of becoming your next moonshot and increasing the profile of your fund

Magistral Consulting VC Due Diligence Outsourcing Process

Magistral’s Process to Outsource Venture Capital Due Diligence

Venture Capital Due Diligence: Key Components

Venture capital due diligence involves looking specifically around the following aspects of a potential portfolio company before committing to investing:

The opportunity size

Assessing the opportunity size carefully gives an idea of whether there is a possibility of a moonshot with the investment. If the total addressable market (TAM) runs into billions and the company solves an acute pain or saves cost or saves time, or makes the process easier, then there is a massive chance that the company will scale up faster. Sometimes the addressable market is at the conjunction of two or more big markets, and there the TAM needs to be arrived at, with careful triangulation and estimates. Calculation of TAM carefully gives an idea of the upside possible if the strategy and team are right.

Strategy

The opportunity size almost always coincides with the Go to Market (GTM) strategy. This is where lots of VCs add value with their network and connections along with the domain experience. The company suggests a GTM, which experts in the due diligence phase verify. A well-presented GTM has level 2 and level 3 steps, along with the timelines and business outcomes. There is also the requirement of funds laid out clearly for every stage.

The size of the opportunity and how the company plans to seize that opportunity is almost a make-or-break part of the due diligence process.

Competition

Competition sometimes is assuring and occasionally threatening. Competitive intelligence in itself throws light on multiple possibilities. If it’s a product or service promised to be one of its kind, it will be challenging to find an exact competition. The task is not to find the competition per se but carefully checking if the market makes sense, to begin with. Is it just too tricky a market to crack, or is there no market at all, or it’s a service or product no one wants to pay for? Competition or absence of it here is a great pointer. In moderately accepted business models, the company is expected to face competition, big or small. The competition is studied for traction. If all the competition out there is growing at a healthy pace, it shows that the industry may have a place for someone who could do the job better. If competition is shutting shops or taking too long to be profitable, then also it’s a pointer towards the choppy waters ahead.

This also needs to be seen in the light whether the target can be number 1 or 2 in a vast market as it all works on the “winner takes it all” philosophy with VC investing

In any scenario, a careful evaluation of the competition throws a guiding light and is an essential step in the due diligence process

ESG

ESG has picked up in the recent past and for a reason. ESG stands for Environmental, Social, and Governance aspects of an investment that indicates sustainable investing. Though it’s far more critical towards the later stage funding rounds, planning yields rewards in the earlier rounds too. It is estimated that the majority of the deals in the future will be impact or sustainable investments, which will fulfill the criteria of ESG maturity. Some studies show almost all investments would be impact investments a few decades down the line. A VC not only plans for an exit from the portfolio but to raise following funding rounds too. Chances of raising rounds at higher valuation increase if the company is primed to be an ESG investment right from the seed or early-stage rounds.

Financials

If the company has been around for a few years and has seen some traction, financial analysis becomes crucial as any other factor in the due diligence process. Financials feed into the valuation of the company. Financials are also essential to forecast future revenues, profitability, and cash flows. In the due diligence process, reasonable estimates are made to project the company’s financial statements for the next five years. That drives the valuation of the company on which the funds are to be raised. In the due diligence process, sometimes, the assumptions made during the preparation of financial models are tested thoroughly. If there is an assumption that may not stand the scrutiny of the financial analyst, it is flagged. If there is a massive impact of an erroneous assumption, this exercise alone could save millions of dollars for the VC investor.

The team

The founding team in a smaller company is the driving force. Suppose the team is experienced, has relevant skills, produced returns for investors in the past, and is motivated to make a difference. In that case, it can be the difference between an investment that reaches out for a moonshot and another one that proves to be a dud. Checking the team’s credentials, experience, qualifications, and connections is an essential aspect of the due diligence process.

Red Flags

Apart from significant aspects discussed earlier, the due diligence team also looks for red flags in the documents submitted by the company seeking investment. It could either be a legal hurdle, financial irregularities, or any other problems with the documentation. Discussing these red flags with the company may well turn out to be fruitful.

Magistral’s proprietary process for Venture Capital Due Diligence

Magistral's Advantages for VC Due Diligence Outsourcing

Magistral’s unmatched advantages in VC Due Diligence

Magistral works with multiple VC firms, some one-man companies, and others running a portfolio of hundreds of companies or start-ups with a few unicorns and soonicorns. After performing hundreds of due diligence exercises across industries like SaaS, healthcare, Tech, Industrials, Services, Real Estate, and others, Magistral has developed a proprietary due diligence service delivery method that counters almost all the drawbacks of outsourcing.

Magistral’s financial analysts take control of the data room. The VC or the company populates all the documents in the data room. We comb through the records with an eagle eye to spot opportunities or red flags. We have developed a standardized checklist to evaluate all types of documents. All our observations and questions are collected by the VC and discussed with the company. We also prepare a detailed report on the business. The information on the company comes from secondary research, discussions with the industry experts, and our in-house expertise in the area. Finally, Investment Memo or pitch deck crystallizes all the insights. These pitch decks are designed consistently with the global marketing standards of the financial industry.

All FTE-based engagements of Magistral have an ever-evolving Standard Operating Procedure (SOP) document. This helps in standardizing the process irrespective of the personal capability of the analyst working on the project. It also ensures a smooth transitioning in case the trained analyst leaves. There is also a shadow analyst always ready to take on in case the analyst leaves permanently or takes off or holidays. It’s so much like the cockpit of Boeing 747, planned for all eventualities.

Our experience has made us more knowledgeable about VC investing than some of our clients. That helps our clients improve their investing game too. Templates, Systems, and our experience and DNA of VC investing ensure due diligence that meets the global standards of investing at competitive valuations. If it sounds interesting, for a conversation with, drop an inquiry here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

 

 

Introduction

The business of Venture Capital funds depends on the targets it invests in. The more the chances of its portfolio companies hitting a moonshot, the more successful the fund is in general. Venture Capital Due Diligence is a process that ensures the appropriate targets are locked in at the seed stage to ensure 50-1000X returns in a 5 to 10-year horizon.

The way a VC fund looks at a target is fundamentally different from how a Private Equity or a lender would look at it. A VC fund looks for that one silver lining that can make a portfolio company a roaring success. PE firms mostly weigh pros and cons and generally invest if the Pros outweigh the cons. A lender analyzes if anything could go wrong with the company and may jeopardize its investments. Different objectives of investment require different lenses for analysis.

Challenges impacting Venture Capital Due Diligence

Venture Capital invests in small firms, primarily start-ups, often only at the idea stage. The biggest challenge for due diligence, in this case, is the availability of data. When the idea has not shown any traction, the research needs to be more outside-in. That is finding out the market information and if any customers may be willing to pay for such services of the potential portfolio company. If there is any traction, then the analysis needs to be both outside-in and inside-out. An inside-out investigation is more towards getting into the details related to operations and finance of the company along with the opportunity that the market offers.

Another challenge is to keep the deal pipeline active for multiple due diligence exercises to happen. Due diligence can throw numerous red flags. If there are various deals in the pipeline, a VC fund can walk away from the opportunity till they get into the company that justifies investment in terms of money and time. Many VC funds park small amounts with the companies they know or are from their circle of friends and family. That biased approach would result in sub-optimal results in the long run

Venture Capital Due Diligence- What to look for?

Venture capital due diligence involves looking specifically around the following aspects of a potential portfolio company before committing to investing:

VC Due Diligence

Questions that the VC Due Diligence answers

The Opportunity Size

Assessing the opportunity size carefully gives an idea of whether there is a possibility of a moonshot with the investment. If the total addressable market (TAM) runs into billions and the company solves an acute pain or saves cost or saves time, or makes the process easier, then there is a massive chance that the company will scale up faster. Sometimes the addressable market is at the conjunction of two or more big markets, and there the TAM needs to be arrived at, with careful triangulation and estimates.

The opportunity size almost always coincides with the Go to Market (GTM) strategy. This is where lots of VCs add value with their network and connections along with the domain experience. The company suggests a GTM, which experts in the due diligence phase verify. A well-presented GTM has level 2 and level 3 steps, along with the timelines and business outcomes. There is also the requirement of funds laid out clearly for every stage.

The size of the opportunity and how the company plans to seize that opportunity is almost a make or break part of the due diligence process.

Competition

Competition sometimes is assuring and occasionally threatening. Competitive intelligence in itself throws light on multiple possibilities. If it’s a product or service promised to be one of its kind, it will be challenging to find an exact competition. The task is not to find the competition per se but carefully checking if the market makes sense, to begin with. Is it just too tricky a market to crack, or is there no market at all, or it’s a service or product no one wants to pay for? Competition or absence of it here is a great pointer. In moderately accepted business models, the company is expected to face competition, big or small. The competition is studied for traction. If all the competition out there is growing at a healthy pace, it shows that the industry may have a place for someone who could do the job better. If competition is shutting shops or taking too long to be profitable or raising further rounds, then also it’s a pointer towards the choppy waters ahead.

In any scenario, a careful evaluation of the competition throws a guiding light and is an essential step in the due diligence process

ESG

ESG has picked up in the recent past and for a reason. ESG stands for Environmental, Social, and Governance aspects of an investment that indicates sustainable investing. Though it’s far more critical towards the later stage funding rounds, planning definitely yields rewards in the earlier rounds. It is estimated that the majority of the deals in the future will be the impact or sustainable investments, which will fulfill the criteria of ESG maturity. Some studies show almost all investments would be impact investments a few decades down the line. A VC not only plans for an exit from the portfolio but to raise following funding rounds too. Chances of raising rounds at higher valuation increases if the company is primed to be an ESG investment right from the seed or early-stage rounds.

Financials

If the company has been around for a few years and has seen some traction, financial analysis becomes crucial as any other factor in the due diligence process. Financials feed into the valuation of the company. Financials are also essential to forecast future revenues, profitability, and cash flows. In the due diligence process, reasonable estimates are made to project the company’s financial statements for the next five years. That drives the valuation of the company on which the funds are to be raised. In the due diligence process, sometimes, the assumptions made during the preparation of financial models are tested thoroughly. If there is an assumption that may not stand the scrutiny of the financial analyst, it is flagged. If there is a massive impact of an erroneous assumption, this exercise alone could save millions of dollars for the VC investor.

The team

The founding team in a smaller company is the driving force. Suppose the team is experienced, has relevant skills, produced returns for investors in the past, and is motivated to make a difference. In that case, it can be the difference between an investment that reaches out for a moonshot and another one that proves to be a dud. Checking the team’s credentials, experience, qualifications, and connections is an essential aspect of due diligence.

Red Flags

Apart from significant aspects discussed earlier, the due diligence team also looks for red flags in the documents submitted by the company seeking investment. It could either be a legal hurdle, financial irregularities, or any other problems with the documentation. Discussing these red flags with the company may well turn out to be fruitful.

Magistral’s proprietary process for Venture Capital Due Diligence

Magistral works with multiple VC firms, some one-man companies, and others running a portfolio of hundreds of companies or start-ups. After performing hundreds of due diligence exercises across industries like SaaS, healthcare, Tech, Industrials, Services, Real Estate, and others, Magistral has developed a proprietary due diligence service delivery method.

Magistral's Due Diligence Process

Magistral’s Due Diligence Process

As a first step, Magistral’s financial analysts take control of the data room. The VC or the company populates all the documents in the data room. We comb through the records with an eagle eye to spot opportunities or red flags. We have developed a standardized checklist to evaluate all types of documents. All our observations and questions are collected by the VC and discussed with the company. We also prepare a detailed report on the business. The information on the company comes from secondary research, discussions with the industry experts, and our in-house expertise in the area. Finally, Investment Memo or pitch deck crystallizes all the insights. These pitch decks are designed consistently with the global marketing standards of the financial industry.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

Introduction

Private Equity (PE) consulting has been around for a while. Many consulting firms have practices offering private equity consulting services. It is interesting to note that even global consulting firms rely on offshoring to a great extent to deliver value to private equity clients on their most pressing issues. Offshoring reduces costs of consulting firms and some of it must be passed onto the clients (we hope!!). But what if all the advantages of offshoring could be passed onto the clients directly?

Read further to know more!!

Private Equity Consulting and Offshoring: Why it’s a match made in heaven?

Management Consulting as an industry has been around for more than 100 years on the back of its solid value proposition for clients. It brings in expertise, experience, political leverage, data sources, network, and usually signs business outcome-based projects with the clients. Usually, benefits outweigh the costs by 3X to 10X.

Private Equity Consulting and Offshoring

Private Equity Consulting and Offshoring brought together

Offshoring also picked up with the advent of the internet. As the work was possible with the help of the internet and advanced communication options, offshoring started to make sense for low-end jobs like call centers and data entry. It was followed by IT and now it is the turn of high-end research, analytics, and consulting jobs. The value proposition of offshoring is cost efficiency and scale. In most cases, offshoring also results in improvements in terms of quality and delivery apart from cost-cutting.

When we combine the forces, we have the impact of consulting with the cost advantages of offshoring, making it an unbeatable value proposition for clients in their marketplace. Management consulting overheads like weekly flights for consultants, high-end hotels for stay, and highly-priced consultants, all of which are paid by the clients are reduced by remote working and service delivery. At the same time, task offshoring to a group with all the expertise in a given industry brings a scale that can be taken advantage of, by smaller clients.

Business Outcomes for Private Equity Industry and the Services Offered

Major work streams at all private equity companies, big or small, comprise of following workstreams:

Fundraising and marketing or investor relations

Deal origination

Deal execution along with due diligence; and 

Portfolio management to get into the operational details of portfolio companies to make it more valuable

Private Equity Consulting Business Outcomes

Private Equity Consulting Business Outcomes

Magistral's Service Offerings for Private Equity

Magistral’s service offerings for Private Equity

Here is how Private Equity consulting helps in these workstreams

Fund Raising and Marketing/ Investor Relations

A fund is established when it has a healthy pipeline of potential investors apart from the existing ones. This is the area where most emerging managers struggle. The game does not even start if the firm is not able to raise the angel fund. However, like everything else in life, robust results need time and consistent efforts. PE consulting helps reach out to the investors and maintain a continuous touch-point to drive home the value proposition of the fund and thus enable successful fundraising rounds.

 

The services that help in fundraising are

Fundraising documentation

Fundraising requires a lot of documentation. Sometimes it could be enormous for an emerging manager. At the same time, it needs to be streamlined for established managers. Magistral helps prepare documents like Private Placement Memorandums (PPMs)/ Confidential Information Memorandums (CIMs), pitch decks, financial models and projections, teasers, and strategy and marketing documentation.

Investor profiling and reach-out

Funds specializing in different areas have different ideal profiles for investors or limited partners. Magistral helps in profiling and reach out to these investors. Magistral also has an in-house database that carries leads of more than 15000+ Limited Partners (LPs) and General Partners (GPs). It can also access databases of other players if the task needs it.

Design and Data Support

Magistral has an in-house design team that streamlines the PowerPoint designs and makes them consistent with the global marketing standards. It’s like we receive the content in raw form, sometimes scribbles from a notepad or whiteboard, and the output is a well-designed PowerPoint that could directly be sent to investors. Similarly, pitch decks and PPMs could also be designed to look more powerful visually. Likewise, data could be streamlined related to investors or CRM systems that the clients use.

Newsletters

Multiple touch-points with investors mark content like Newsletters, PoV documents, Industry reports, and market research. Magistral has experience working with hundreds of clients working on these assignments. It has access to resources like secondary sources, interviews with the panel of experts, and triangulations to come up with market sizes, etc. Worthy content establishes the authority of the Private Equity fund in the eyes of accredited investors.

Sustainable Investment and Impact Assessment

We have a specific service offering around ESG analysis, sustainable investments, and impact assessments of the current or potential assets acquired by the Private Equity firms.

Deal Origination

Deal origination services make sure that the focus of the GP is on the suitable targets and populate the deal pipeline with more appropriate deals, to be taken up as and when required. Picking up the right deals is the lifeblood of PE operations. It’s by picking up the right deals that a GP can offer superlative returns to its LP investors. Magistral helps with Deal Flow support and Inbound deal flow analysis.

The deal origination related services offered are:

Industry tracking and landscaping

A Private Equity firm needs to scan the environment for investing continually. It needs to track its key markets, geographies, and industry regularly to take advantage of emerging trends. Magistral has helped multiple clients in tracking industries like healthcare, SaaS, blockchain, cybersecurity, heavy engineering, and many others.

Potential target identification

A list of suitable potential targets is generated using secondary and primary sources. As per the investment thesis, the targets satisfy a host of customizable criteria like revenue, profits, employees, industry, geography, and being open for investments. Secondary sources include databases, whereas primary sources are industry associations, accelerators, angel investor groups, etc.

Target company profiling

Once the list is generated for potential targets, the next step is to shortlist the companies of interest and go for a deeper dive.  A target company is profiled for its business details, strategy, latest developments, management, SWOT, Porter’s 5 forces, and other customized information. Understanding the openness of the company for an investor on the board is also studied at this stage.

Target pipeline management

For deals to be continuously happening, the pipeline needs to be populated continuously. There should be deals in all stages of deal-making. That is ensured by filling the targets in the funnel on an ongoing basis.

ESG Analysis

ESG or impact analysis is more critical than it was ever before. It’s imperative then that Private Equity firms evaluate the deals for ESG fitments. A company that performs better on ESG frameworks is a more sustainable investment and makes a far-reaching impact on the society and communities it serves.

Inbound deal flow management

If a firm receives lots of inbound inquiries, there needs to be an agency to sort out the worthy opportunities from the non-serious ones. Magistral matches the opportunities with the GPs investment thesis and brings forward the best deals.

Summarizing and preparing IMs:

If start-ups send IMs, the same need to be summarized for discussion with the investment committee. Magistral summarizes the Investment memos into investcomms decks for quick and effective decision making.

Deal Viability Analysis: This involves getting into the nitty-gritty of a deal, identifying red flags both inside out and outside in, to make sure the deal produces the impact, which is the aim of the investment to start with. This is achieved from the exhaustive and comprehensive market and company research.

Deal Execution and Due Diligence

Deal execution and due diligence ensure the right investment decisions to produce significant returns, identifying risks for better planning post-investment or M&A.

Here the services are about providing all the foresight and intelligence to make the right decisions. The primary service offerings here are:

Target company due diligence

Here, Magistral takes access to the data rooms and analyses the information to produce highly relevant deliverables and insights. Due diligence includes financial, operational, and ESG related aspects of a firm. Magistral works with both Private Equity firms and Investee companies. It prepares Due Diligence Questionnaires (DDQs) and collects information from the investee companies, either directly or indirectly.

Industry Research

Here, industry research is more specific and has to do with the target company’s operations. The industry in which the target operates and details like trends, SWOT, Porter’s five forces, key competition, pricing trends, news. etc. are captured to provide a holistic view about the industry in which the target company operates

Detailed company profiling and competitive intelligence

In this stage of the company profile, details are captured from multiple sources like ex-employees, management, existing employees, vendors, competition, investors, and industry stakeholders. Also, information related to competition and their strategy is captured using primary and secondary sources.

Investment Memorandums

If the investment needs to be made with other co-investors, standard documentation is applicable like Investment Memorandum, Confidential Information memorandum, Pitch Deck, and Financial Models.

Modeling and Valuations

This exercise ensures that deal is made at the right prices so that there is a significant upside for the investment returns. Magistral has prepared 100+ financial models for valuations in industries like SaaS, tech, healthcare, IT, manufacturing, B2C retail, fashion, chemicals, and e-commerce. Here the information and assumptions required to prepare a financial model are captured from detailed discussions with the client. The models in which Magistral has expertise include and are not limited to 3 parts financial models, LBO analysis, DCF modeling, Real Estate modeling, precedent transaction analysis, comparable analysis, and impact analysis.

Portfolio Management and Fund Management

Portfolio Management aims at maximizing the value of the investment in a company by a Private Equity firm. This is achieved by supporting various tasks of the acquired company to reach more customers, hence improving revenue or reducing operations’ costs. Fund Management is about streamlining the functions of the fund itself to focus on the core tasks of investing and fundraising.

Here the services are:

ESG Compliance Monitoring

Magistral, after assessing the ESG maturity of an investee company, suggests a set of metrics monitored periodically after the investment is made. The data is collected on these metrics and reported to the board and management along with investors every quarter.

Outsourced CFO

Outsourced CFO services are relevant for both funds and the portfolio companies, specifically in the cases where the PE firm invests in start-ups or smaller firms. These companies may not be in a position to invest in a full-time CFO and thus may go for an outsourced CFO that is fractional and provides the operational and cost flexibility. Sometimes Financial Process and Accounting could be outsourced, while CFO could be kept in-house. These tasks include accounting, bookkeeping, administration, procurement, and preparation of financial statements

Outsourced Fund Administration

This service is specifically for funds and takes care of all the administrative aspects of the fund like fund accounting, expense monitoring, trade reconciliation, distribution waterfalls, taxes, fees, incentives, expenses, etc.

Strategy and Business Development support

After the investments, most PE firms focus on growing the revenues of the portfolio companies. This is done through a slew of interventions on strategy and marketing. Magistral supports these activities by providing services like consumer and market studies, new product or market development, lead generation, which is critical in the B2B space, and finding follow-on acquisition or buyer for the investee companies.

And this is how Private Equity consulting joins forces with offshoring to provide an unbeatable competitive advantage for our clients.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

Introduction

Financial process outsourcing has been on the horizon of businesses for over a decade now. But there are a few trends that are making this process all the more strategic. It is not only about cutting costs, but having the right partner who could improve the processes, change culture, bring in the new talent and technology and make finance more predictive and proactive.

When it comes to Financial Process Outsourcing, the following trends are changing the landscape of the industry

Smaller and niche clients

Bigger players with a headcount of hundreds of thousands started taking advantage of outsourcing around a decade back. They are increasing it in terms of scale and complexity, however, the major volume is now going to come from smaller players as small as 1 or 2 men companies. Niche processes that are difficult to deliver on a turnkey basis also show promise.

Technology

Technology impacts all industries all the time. Financial process outsourcing is no exception. It has now moved from process outsourcing to process reengineering to automate steps and bring down the costs further and improve the operational efficiencies

Outcome-based offerings

Outcome-based offerings are still to take off but are on the horizon. It makes the vendor, your business partner where they are accountable for business results and not only delivering on the processes. Metrics related to a reduction in sales outstanding, operations costs, cycle time reductions, liquidity improvements, forecast accuracy are a few related to advisable business outcomes

Strategic importance

Outsourcing started as a low-cost low-value add jobs outsourcing. It still is to some extent. However meatier and strategic jobs are now being outsourced. Processes like budgeting, fundraising, investor communications, etc. are also being outsourced apart from the run of the mill accounting jobs

Advantages of Financial Process Outsourcing

There are multiple reasons why outsourcing the financial processes is the best way of doing it. The reasons not only involve cost savings but a host of others that raise the operational standards of the client, whatever business they are in.

Magistral's Financial Process Outsourcing Advantages

Financial Process Outsourcing Advantages that Magistral Consulting Offers

These advantages are:

Cost

Of course, cost considerations here are tangible and very obvious. One dollar saved is a dollar earned. That is a saving that starts showing in the P&L as soon as you decide to outsource. Depending on your location and the process that you wish to outsource a savings of 50-80% is very normal and can be expected.

Flexibility

Apart from the absolute cost savings, there is a further scope of savings due to fractional resources. Fractional resources mean that you are not hiring anyone permanently but are tapping into the skill and experience of the resources only as and when required.

CFO outsourcing

CFO outsourcing or substantial outsourcing of strategic tasks is an emerging trend. This is all the more important for start-ups or funds that are small and can’t afford a full-time CFO.

Focus on core tasks

Outsourcing frees up the management and workforce bandwidth to focus on more strategic aspects of business and operations

Technology

As the vendor is experienced and has worked on outsourcing similar processes from other clients as well, it’s in a better position to recommend and implement a technology that might reduce the effort or improve the turnaround time for a process. It is done by automating several tasks of the process using Artificial Intelligence and machine learning algorithms.

Operational efficiency improvements

Outsourcing to an expert improves the operational efficiency of a process by multiple notches. Something like an increase in efficiency due to touchless processing, reductions in operations cost, and reduction in Day Sales Outstanding (DSOs) are very typical operational outcomes of outsourcing

Improved plan compliance and making finance more predictive

With tools like dynamic real-time scenario planning, dashboards, visualization tools, data science and analytics, and on-demand reporting, it’s possible to make the finance function more predictive

Financial Process Outsourcing: What could be outsourced?

Financial processes that are low value add and not strategic could of course be outsourced. Now added onto transactional outsourcing is the strategic outsourcing elements that require specialist interventions. The activities that could be successfully outsourced are:

Bookkeeping and back-office support

The activities that are time tested to produce cost benefits and improve the quality of operations are account reconciliations, deferred revenues, customer billing and payments, expense processing, general ledger, financial and tax reporting, currency consolidation, payroll services, and vendor invoicing.

Controller services

The services like audit reports, auditor facilitation, compliances, MIS, dashboards, etc form the backbone of outsourcing here

Financial Planning and Analysis (FP&A)

This is the bulk of the planning and analysis aspects of the Finance function. This includes acquisition integration support, board reporting, financial data analysis, ratio analysis, comparative analysis with competition, financial research, along with planning, budgeting, and forecasting

Fundraising

This aspect requires a very specialist intervention. Here the offerings include pitch deck content and design support, investor reach-out, modeling and valuation, and investment bank’s selection

Mortgage process outsourcing

This is a specialist process of a lender whose critical elements could be successfully outsourced. These elements are marketing, loan origination data entry and analysis, underwriting documentation, background investigation, property assessment, accounting, financial checking, documentation checking, mortgage underwriting, and every other micro sub-steps required for the evaluation, underwriting, and approval of loans.

Magistral’s tried and tested process for outsourcing

Magistral has helped scores of clients in the financial industry and elsewhere in outsourcing operations. Magistral follows a customized and low-risk process for a smooth transition. The process puts business continuity and risk minimization at the center. Here are the major steps in offshoring that is proprietary and unique to Magistral:

Magistral's Financial Process Outsourcing Steps

The approach followed by Magistral Consulting for outsourcing financial processes

Project Kick-Off

There is a call with all the client stakeholders to understand their challenges and expectations from offshoring a process. Once the business imperative of offshoring is understood, a proposal for services is prepared. The proposal carries in detail the commercials, methodologies, KRAs and KPIs, project plans, and other details required for client management to take a call. Once the proposal is signed off the action begins.

SOP preparation

Before taking any project for delivery Magistral invests a great deal of time and expertise in preparing Standard Operating Procedure documents. For preparing SOP a trained analyst gets in touch with the client SPOC (Single Point of Contact) and by his skills in business analysis brings all the knowledge of people onto a process document. We call this “bringing what is between the ears onto the paper”. Every fine detail is captured. A Magistral SOP document would carry lots of process diagrams, tips for analysts, swim-lanes, along with audio and video recording of meetings and training. The whole of this process is done without any cost to the client. Clients first-hand see the expertise that Magistral brings to the table without any investment on their part. Once the SOP document is ready, the signoff about its accuracy is taken from the relevant personnel in management. Till this point client does not spend even a single penny and we are fine about it.

Business Reengineering

Once the detailed SOP is ready, business reengineering opportunities make themselves evident. There are processes where either cost could be reduced or turnaround time could be improved by Artificial Intelligence, Automation, and Machine Learning. The same is shared and validated with the client.

Pilot Projects

Our proposals are always signed based on the projects or milestones that we deliver. It is never based on the number of people (FTEs) that we employ to deliver services. Normally vendors will charge for FTEs and then they will sit and undergo process training at the client’s expense. With Magistral, you only pay when we deliver the project or processes that meet your quality standards. We start with low volumes. Trainers get trained in the process. Coordination with the client is very close and done almost daily to fill any gaps in delivery and expectations. For bigger projects, an onsite analyst sits with the client for weeks and is responsible for business analysis and knowledge transfer.

SLA finalization

Many times, there are no Service Level Agreements decided for internal teams. We make sure we are accountable for everything we deliver and decide the SLAs of every process. These SLAs can be in terms of improvement in quality, turnaround time, analyst’s availability, prompt acknowledgment of requests, etc. With Magistral, if you have internal SLAs, we promise to beat that further with at least 20% improvements.

Process Stabilization

With SLA compliances meeting standards, we increase the scope and volume of work offshored.

 

The phased approach ensures the client is never too invested to back off. The process is also designed to give enough confidence to the clients to trust the expertise of Magistral.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Introduction

Around the globe, there is a trillion-dollar business of investing in all sorts of assets like equity, both public and private, real estate, and upcoming assets like cryptocurrencies. Once the investment is made, the task on the part of the investor shifts to investment management. There are many activities of investment management that could be outsourced and that is what leads us to analyze the stream of investment management outsourcing. Investment management and hence investment management outsourcing takes all forms depending on the asset being invested in, and the prime business of the asset or investment manager.

Here we take a look at major activities of each type of investment manager or asset manager which could be effectively outsourced to save on costs and improve quality.

Who Should Outsource Investment Management and How?

Outsourced Investment Management

Outsourced Investment Management for different types of Asset Managers

Private Equity and Venture Capital firms

The underlying asset that a Private Equity or a Venture Capital firm invests in is equity. Sometimes it’s for stocks listed on exchanges but most of the time these are private investments, the target of which are start-ups are unlisted companies.

In the PE/VC value chain of investing, there are activities like Fundraising, Deal origination, Deal execution, and Portfolio Management. Quite a few activities in these departments are outsourceable. For fundraising, the activities like investor reach-out, investor profiling, CRMs, newsletters, white papers, and data management jobs could be effectively outsourced. Regarding, Deal origination, the deal pipeline management has a great potential of outsourcing along with initial due diligence. Deal execution processes like valuation and financial modeling are templatized and could be considered. Portfolio management has varied activities and outsourcing potential vary as per the nature of the business of the portfolio companies. Most activities related to Strategy and Marketing have great potential for outsourcing when it comes to Portfolio Management.

Hedge Funds

For the most common type of hedge fund out there, that is a long-short equity hedge fund, multiple activities should be considered for outsourcing. Equity Research is the foremost one. The research that is done for the investors is almost always best to be outsourced. Apart from Equity Research, Fund Administration and Fund Accounting are better done when outsourced. It makes sense from the cost and expertise point of view. Marketing activities almost always have great potential for offshoring.

Real Estate

Managing a real estate asset after the investment comprises standardized work-streams. Most of it relates to collecting data, analyzing it, making reports, and raising red flags if any. Accounting and administration along with research has a great potential for outsourcing

Investment Banks

Investment Banks are into all sorts of assets directly or for their clients. For the varying types of their work pallet, there is varying potential for outsourcing.  For investment banks, activities that are commonly outsourced are Equity Research, Security-based Investment Research, development of excel or other automated models, investment research for private investments, marketing, deal origination, and deal execution. In fact, 30-50% of all activities performed by an investment bank has a solid potential for outsourcing that may be explored

Asset Management Firms

These are for specialized asset managers like managers managing a portfolio of crypto or commodities. There is no one size fits all approach to outsourcing for these asset managers. As a thumb rule, everything related to technology like platform development, automation, website development, or software development can be outsourced. Also, anything that is of support function’s nature like Strategy or Marketing could be looked at.

Models of engagement with the outsourcing vendor

Once you have made your mind to explore outsourcing, the biggest concern is around the way an outsourced vendor or the service provider would work with you and your team. There are three established models of working while outsourcing. These are FTEs, Retainer, and Ad-hoc. Some progressive vendors like Magistral are signing up success-based contracts too.

Outsourcing Engagement Model

Investment Management Outsourcing Engagement Model

FTEs

FTE the most common engagement model for investment management outsourcing.

FTE stands for Full-Time Employee equivalent. It’s like a virtual employee who is operating from a different country. This virtual employee could be coordinated with, on email, video calls, WhatsApp, chats, or any other mode that is suitable to the client and is convenient as per time zone differences. It looks like a person is aligned with the client full time and he works seamlessly with the client. That is always the case, but the vendor, his processes, training, supervision, and culture play a big role in ensuring the continuity of services. A vendor enables the FTE to perform optimally by providing training and desired supervision. The vendor’s processes ensure that the client is insulated from the bad performance of FTE as the work is supervised by more senior resources. In case the individual decides to leave the organization, similarly, qualified and trained professionals are available on the bench for the replacement. That is the reason it makes sense to work with individuals through the service providers who may be an established name in their industry. Working directly through freelancing websites or hiring directly exposes clients to manage costs and risks, which is not the case while dealing with an established service provider.

This also is the cheapest model on per hour basis. But it is inflexible as there may be contractual obligations for a minimum period of support. This case is more prominent when resources are specialized in niche skills

Typical jobs that require FTE engagements are operational, where the offshored team works with the onsite team seamlessly. So, if a task is part of your ongoing investment management operations, mostly it will be outsourced on FTE-based engagement.

Retainer

You know there is a need for outsourcing tasks. At the same time, you think a full-time individual working on these jobs may be overkill. In these situations, where tasks just require some hours every month, the retainer model of engagement comes in handy. Say rather than hiring an FTE or a full-time virtual employee, you would only want 100 hours’ worth of tasks outsourced every month. A retainer is far more flexible than FTEs but costs higher on per hour cost basis. Typical jobs that are suitable for retainer-type outsourcing are newsletters, MIS, reports preparation, and other marketing-related tasks.

Ad-hoc Projects

As the name suggests the engagement is for one-time projects only. A client gives out the scope of the project. The service provider or the vendor provides a proposal that carries, scope of work, timelines, and commercials. The project kicks off after the client signs off the proposal and is paid after the delivery of the project. Almost any project that is strategic and is not expected to be repeated on an ongoing basis is an ideal candidate for ad-hoc based outsourcing. Also, it’s an ideal mode, if you would want to test the services of a vendor before signing a longer-term contract. It is the most flexible outsourcing arrangement as projects may start or end at your convenience, but at the same time, it is costliest in terms of cost per hour basis.

Success Based

Most traditional service providers shy from signing a success-based engagement. The fear stems from the trust deficit, performance fears, and the complications of defining a success scenario. Magistral signs success-based engagements with clients, with whom it has existing relationships. Existing relationships take the risks related to trust deficit and performance. A mutually agreed “success” scenario could also be defined in those situations. The tasks that are outsourced under these arrangements usually relate to fundraising, deal sourcing, and meetings’ set up

Magistral has helped more than 100 clients in outsourcing and offshoring multiple activities related to the Investment Management process. To start a conversation drop a line here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

 

Investment Management Outsourcing for Emerging Managers

Operations outsourcing by financial institutions is a trend that is fast picking up. Though bigger banks had taken a lead over other investment management firms earlier, now is the time for highly specialized firms like Investment Banks, Private Equity, Venture Capital, Real Estate, Family Offices, Hedge Funds, and Asset Management firms to take advantage of outsourcing. The reasons for the same are quite simple. It leads to cost efficiency and improvement in operational flexibility with absolutely no dilution in terms of quality. It leads to quality improvement with an experienced vendor who is working with multiple clients like you. Though it’s easy to understand how it leads to benefits for an organization on a headcount of hundreds and thousands. However most vital is the support for emerging managers.

Benefits of Outsourcing

There are multiple benefits of outsourcing for financial institutions big or small. Here is how they could benefit if they are considering outsourcing

Cost Advantages

Outsourcing is typically delivered from a low-cost country like India. India is behind western countries in terms of Purchasing Power Parity (PPP). If ten dollars can buy you a burger in New York, it might buy you a 2-bedroom flat in Delhi. I hope you get my feeble attempt at humor. A fine dining experience at the cost of a burger may be a better analogy. The point here is that you can get the same quality at a far lesser cost if it is delivered from India. Depending on your location, there is a potential of saving 30-70% of the operational costs, with virtually no impact on continuity or quality. The potential of savings is meaty for geographies like the United States, the United Kingdom, Europe, and Australia

Remote workforce

Covid 19 has re-laid the rules of working forever. Remote work is now going to be a mainstream option even for demanding careers in investment banking and investment management. Whether the Analyst works from New York or New Delhi, there is little difference. There is little reason then, to not work with the brown guy based out of India!!

Quality

Outsourcing has low-quality connotations. Yes, outsourcing did start with low-end jobs like customer care and call centers, but that was a couple of decades ago. Now there have been waves of outsourcing and with every wave, the type and quality of outsourced work improved. After call centers, it was IT. Now it’s the turn of financial management and Research and Development that is riding the wave. Quality is better than in-house work. The reason for that is the outsourced team works with far more similar assignments than an in-house team. This is all the more important for an Emerging Manager who are still picking up the ropes of operational quality and scalability

Databases

The assignments related to fundraising, deal origination, deal execution, and due diligence require access to multiple databases. If a firm goes for signing up for each database, it ends up being a big cost bucket. With an outsourced player, these costs could be controlled as the vendor’s costs are distributed over multiple clients

Scaling up and scaling down

An emerging manager is thin on the workforce. So, when the deals come in, there are times, when the deal pipeline is more than what the current team could handle. The ad-hoc arrangement can lead to a loss of quality. Outsourcing is a perfect solution for this situation. Experienced resources are available on short notice and churn the assignments that are at the level of global quality

Flexibility

Multiple outsourcing models exist, where a Full-Time analyst can work with you from an offshore location like a virtual employee. Or you can subcontract the work on an hourly basis or give out a project on an ad-hoc basis. Whatever is the model, the quality of the work remains steady. You are always in control of the costs too

First Mover Advantage

Outsourcing for high-quality critical work has started to pick up. It is just a matter of time, that they would eventually be delivered from offshore locations. The companies that pick on this trend earlier have a competitive advantage over other players in terms of pricing their services. In-fact developing comfort working with teams that are dispersed across geographies is going to be a competitive advantage not only for financial services but across industries. Emerging Managers gain massively from this trend as it gives them a pricing advantage with their initial set of clients.

Magistral’s In-House Investors Database

Magistral has an in-house database, that carries records of 25000+ global Limited Partners and General Partners. This database is priced to suit the budget constraints of emerging managers. This is by far the cheapest such database. Even after being priced so low, it is an effective way to get started on reaching out to investors.

Time Zone difference

The work happens while you sleep. Not that, someone sits with a laptop beside your bed and works, but time-zone difference ensures that your operations effectively move both in the day and the night. In the day onsite teams move the work, while in the night, due to time zone differences, the offshore team moves the work. Offshore teams pick up the work from where it was left by the onsite team. Assignments effectively move at double the pace.

 

As these are the general benefits of outsourcing to all players, big or small. For Emerging Managers outsourcing is absolutely critical as this may be the only way to start the operations on a shoestring budget of Emerging Managers

How does outsourcing help Emerging Managers?

Operations Costs

When Emerging Managers are starting up, money that can be spent is always an issue. Outsourcing keeps the costs low and that is exactly what is required at that stage. This is also relevant for start-ups in the investment management space.

Operational Know-how

Emerging Managers may be experienced, having worked for many years before going on their own. At the same time, they could come up with a new idea and may have limited experience in the traditional areas of fund management and fundraising. Outsourcing may bridge the gap in terms of know-how as the outsourced vendor may have helped the clients in a similar space.

Flexibility

An outsourcing vendor offers unmatched operational flexibility like having a resource working on a specialized assignment just for a week, or designing a pitch deck by an experienced designer in a couple of days. This flexibility is also extended when it comes to prices of services.

Agility

Emerging Managers enter a space based on a few assumptions about an industry and its potential. After entering the market, there may be a realization that potential may not be there or maybe suspect. Also, there is a need of changing tracks multiple times during the initial days in the business. Here hiring for a set requirement when the business is not established can lead to loss of flexibility.

How to go about Outsourcing?

If you have read, so far, I suggest you check our website www.magistralconsulting.com. Please feel free to write in and ask for our work samples and client references in the areas where you need support.

Magistral Consulting has helped multiple Emerging Managers in establishing their operations on shoestring budgets. The offshore team is capable to deliver projects related to the complete value chain of the investment management like fund-raising, deal origination, deal execution, and portfolio management. To schedule a discussion please visit here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

Introduction

Are you thinking about operations outsourcing?

So, you are a Private Equity or a Venture Capital firm that invested in a portfolio company? Or you are the owner of a small or family business and want to change the culture? Or you are an advisor to firms that are looking to reduce operations cost? This article may help you.

 

The company has been in existence for decades and has had a decent run in terms of profitability and growth over the years.

Or, it’s a tech or SaaS startup and has the potential to see explosive growth in a short time.

 

Whatever is the case, assessing the potential of operations outsourcing should be the first step for any investor, owner, or advisor who can call shots when it comes to the strategy of the portfolio company

 

We will detail out the challenges of a new investor in the portfolio company and then go onto make a business case for outsourcing. We will also let you know the required process to outsource the chunks of operations for the newly acquired company.

Challenges of a new investor in the portfolio company

Here are the challenges that investors face after investing in a portfolio company

-Quick and Profitable Exit: The portfolio company is at a promising stage. It is either giving consistent returns from the past or has the potential for explosive growth. The investor needs to improve the revenue and profitability dramatically for a juicy exit in 5 to 10 years.

-Change Management: If the company has been around for some time and is generating decent returns, the next step would require shaking the complacency of family or small businesses, so that they are ready for the next stage of growth

-Focus: If the company is comparatively new, the focus should be laser sharp on a few key metrics like subscribers’ growth, conversions, clicks, etc. Though the focus is on a few key metrics, still management needs to keep an eye on the other operational metrics too.

– Non-controlling stake: Not all the time investors may have a hold on the management and decision making. Even without being in control, the investor needs to add value with effective advisory with the minority stake

A few quick wins in these situations go a long way in assuring Limited Partners and the management of the newly acquired company about the investor’s ability to turn around the situation.

How does operations outsourcing help?

Here is how outsourcing helps in multiple ways in the situations explained above:

Reducing the operations cost quickly: There are lots of apprehensions about what could be outsourced. Smaller companies think outsourcing produces impact only for the headcount of hundreds of thousands. That is far from reality. Any job that could be performed away from the office could effectively be outsourced. Outsourcing reduced the cost of operations anywhere from 20% to 70% depending on the location and the operating model of the business

Brings in critical skills without much risk: When investors identify priorities, they quickly need to bring the critical skills onboard. Outsourcing could help in bringing those niche skills without any performance risks.

-Improves the pace of implementation: As there is an extended partner, sitting out in a different jurisdiction, that ensures critical skills are available as soon as possible, there is a remarkable improvement in the pace of implementation of strategic initiatives.

What could be outsourced?

Outsourcing has a low-cost low-quality connotation. Outsourcing as an industry has come a long way since its beginning as low-cost low-quality jobs. Currently, there will not be any Fortune 500 company on the planet that may not be outsourcing any of its jobs. That does show the indispensability of outsourcing but does nothing to quell fears related to quality. Currently, the jobs that could be outsourced, not only belong to the low-end customer care jobs, but high end as well like Investment Banking. Magistral has helped dozens of its clients in outsourcing operations to low-cost countries like India.

Here are the examples of jobs that were successfully outsourced

-Design engineering for an interior designing firm, including kitchens and bathrooms

-Bill of Material preparation for a civil contractor

-Digital Marketing for a SaaS-based investment platform

-Handling high-end B2B accounts related inquiries

-Preparing legal agreements for a BFSI player

-Managing procurement function of a steel company

Well, this may be a small piece of the universe, but you get an idea. If you need an operational element outsourced, but are not sure if it could be outsourced, visit here, for a free assessment. If you are still not convinced, read further to understand the safest way of doing this for your portfolio company

How to go about operations outsourcing?

Here are the stages involved in an effective operations’ outsourcing

Business Analysis: An outsourcing potential assessment starts with a detailed business analysis of the current operations. All operational elements are evaluated on the potential for outsourcing, risks related to outsourcing, and the criticality of the job for the operations. Depending on the business analysis, the recommendations are suggested for either complete, part, or no outsourcing for all operational jobs. The business analysis could be done over online meetings or onsite visits depending on the scope of the outsourcing project

Knowledge Transfer: Knowledge transfer from onsite to offshore is done effectively in conjunction with the client. SOPs, KT plans, RACI, SLAs, and other tools are used to make sure knowledge transfer is effective, accountable, and rapid. At the end of the knowledge transfer exercise, all the knowledge in people’s heads is transferred to standard operating process documents. The client signs off the documents for further steps

Dry Run: Once the KT is completed, a dry run is undertaken for a small part of operations, being performed from offshore. Service Level Agreements and Operational KPIs are monitored closely. Some initial hiccups are expected in this stage of the process. All hiccups are slowly ironed out. Once all KPIs and SLAs stabilize, the process moves to a wet run.

Wet Run: In the wet run, the process is scaled up for multiple areas, but still a small portion of each area at a time is taken to be delivered from offshore.

Scale Up: Once KPIs and SLAs stabilize after initial hiccups of dry run and wet run, the offshoring is scaled up for the complete process. Effective governance and quality control measures ensure the process stability throughout the engagement

The multiple stages of offshoring protect the investor and the portfolio companies from shocks related to performance and job quality. At every stage, there is a mechanism to see if things are working out as planned. Corrective measures could be taken as soon as the deviation occurs.

Magistral has assisted multiple investors in outsourcing operations of portfolio companies through this process. Magistral has also helped multiple small and medium-sized businesses in the United States, United Kingdom, and Europe in taking advantage of Operations’ Outsourcing.

To commission a business analysis for a portfolio company visit here. To know more about our capabilities, visit here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

Background

Magistral Consulting is a leading research, analytics, and consulting services provider to global Investment Banks, Private Equity and Venture Capital firms, Hedge funds, Family Offices, and Real Estate firms. As part of its product strategy, it launched an investor database starting 2021.

We help these global financial firms in outsourcing operations and many times end up managing their fund-raising and investor relations’ process. After doing the fund-raising exercise for multiple start-ups and emerging managers, we found ourselves sitting on a wealth of insights in terms of investor leads. These investors comprise Limited Partners like Family offices, Sovereign Wealth Funds, Insurance companies, and HNWIs, who invest in funds like Private Equity, Venture Capital, Hedge Funds, and Real Estate Funds. The investors also comprise General Partners who invest in start-ups right from seed to later stages.

It was an organic strategy to wrap all these leads into a database that may help funds and start-ups looking to raise funds. We also wanted to keep it affordable and still actionable.

Challenges with current investor databases in the market

We strongly felt there was a current need in the market in terms of an investor database, that is not being met. Here are the gaps that we observed in the current set of databases existing in the market:

Cost of Investor Databases

The investor databases are available in the range of $5000-$25000 per month. On top of that, most demand a minimum commitment in terms of months of subscription. The costs go further up with the number of users. These costs are prohibitive for an emerging manager or an unfunded start-up, which are operating on shoestring budget constraints. We were ourselves in this situation and realized that preparing leads organically was a better solution than buying a database and then holding onto it, without any guarantee of it carrying the leads that we need.

Information overload

Databases must have started with a simple leads platform but on their way would have added other information too. Right now most databases carry all sorts of relevant and irrelevant information. There is investors’ information along with deals, news, and company profiles. Remember, it’s the database buyer who pays for all the information aggregated in there, even the useless ones.

Someone who is looking to raise funds needs email IDs and names to reach out to relevant investors. Researching their deals and requirements come at a later stage when investor allocates time to know more about the offering. We provide all that information customized and don’t bundle it with the database. That keeps our database simple and costs under control.

No scope of customization

Most databases on the market are on an “as is where is” basis. They do give a short demo, but once bought in, you may end up not finding any meaningful leads for your specific requirements. We have taken that performance risk out of the equation with our database. We offer 1000 customized leads that will be delivered within a week along with the complete database. It’s like you have access to all the global LPs from the database but would also want LPs specializing in South American markets. The database will provide the former and the customized effort would provide the latter. Of course, the database is also available on “as is where is basis” at very minimal costs.

Quality of Investor Database

The quality of the databases available right now in the market is not up to the mark. In the scores of fundraising assignments that we did for several clients, we ended up using several databases available in the market. Emails bounced off generally for 20-30% leads. Magistral database has an allowed bounce rate of lesser than 10%. That means more chances of your message reaching the desired target audience. 

No specialization

There are way too many players, who offer leads to almost any industry for any decision-making designation. These are scraped data and most of it is junk. Our database is geared towards the aim of raising funds for emerging managers and start-ups. We have the right leads from the verified investors, who may be exploring the investment opportunities. Magistral’s database is highly specialized and is prepared by analysts who have years of experience in the fund-raising process.

Analyst on Demand

On Magistral’s database, you can reach out to a research analyst whenever you want, for clarification on the data or further research on any of the leads or investors.

Differentiating aspects of Magistral’s Investor Database

There are many differentiating aspects of Magistral’s Investor Database.

Magistral's Investor Database Features

Magistral’s Investors’ Database Features

Database Cost

Magistral’s Investor Database costs to fit in budgetary constraints of an Emerging Manager or an unfunded start-up. The cost of Magistral’s Investor Database is only a few hundred dollars and it gives you a head start with investors right away. Even a single successful contact will bring over multiple times returns on the cost invested on the database. For knowing more on pricing plans visit here.

Customized leads

We promise 1000+ customized leads for your requirements. If you are only interested in leads of Limited Partners based out of the Middle-East, just drop a line and it will be made available to you within a week. All these leads are researched in-house by an analyst who has significant experience in the fundraising and investor reach-out process.

Designed by specialists

Magistral has helped multiple asset managers and start-ups in raising funds. The database was designed to aid internal teams in reaching out to investors before being floated as an independent product. The data is made by analysts who have raised funds and understand the exact pain point of the managers looking to raise funds.

Minimal and Right Data

Data availability follows a minimalist approach. We only provide the data that is required to make the first contact. We don’t overload the managers looking to raise funds with all sorts of data about every player on the planet which may never be used. Once the first contact is made and you need further information on the investor, you could always write to an analyst on demand, who would provide all the detailed information within 24 working hours.

Analyst on Demand

Analyst on demand is available for researching more leads, profiling investors, preparing pitch decks or Private Placement Memorandums, financial modeling, and other jobs related to fundraising. Pricing of each type of service is quoted upfront and remains the same for all iterations and changes in the scope. So, there are no worries related to overbilling in terms of billed hours for an assignment. We are always conscious of your budget.

Bounce-back Guarantee

We guarantee 100% leads with an email ID. We also guarantee more than 90% of the leads with a postal address. We also estimate less than 15% bounce backs from the mails sent to the investors

If you would want to have a demo of the database or would want to subscribe to Magistral’s Investor Database, please drop an inquiry here

Breadth of Information

The database carries further smaller databases like Angel Investors Database, Institutional Investors Database, Accredited Investors Database, Indian Investors Database, Crypto Investors Database, Private Investors Database, Infrastructure Investors Database, Stock Investors Database, and multiple other categories. We are continually updating the categories on our website

User-Friendly Features

All the data could be downloaded into excel sheets for further analysis and integrating the data with the CRM systems. The investors could be searched by location, specialization, investment preferences, size, and several other relevant criteria

 

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Introduction

Sell-Side Research services are going through a paradigm shift. A recent survey of Buy Side managers considers “Research” as an important element while deciding the investing avenues. At the same time, it is assumed that “Research” would be bundled with the offering, without being paid for separately. This leads to optimizing a loss leader, where controlling costs become as important as the depth of the research.

Outsourcing sell-side investment research services present a compelling proposition. It leads to maintaining almost similar quality while bringing in the savings in terms of operations’ cost.

In the article, we will evaluate the various functional areas of Sell-Side research that could be outsourced effectively

Fund Raising Services

Buy-side managers are flooded with requests from all sorts of financial instruments and Fund Managers. For smaller funds, the best chance of raising funds is from their personal network. Once those opportunities are exhausted, more reach out could be outsourced for cost efficiencies. Also, for smaller emerging managers, it takes quite some time to close the maiden funds. The best option is to carry on with providing the returns to existing investors and improving the track record while attending all the investor meetings that come their way. Success is hardly overnight. Outsourcing the fundraising process saves precious dollars of a smaller fund while still maintaining the reach-out process effectively.

Sell-Side Research

We have categorized the sell-side research by the organizations that undertake them. They could very well be categorized by their specialization or industry

Sell Side Research Services

Sell-Side Research Services

Sell-Side Research- Corporate M&A

Sell-side research in corporates revolve around M&A. Carving out a division and finding a suitable buyer for the division is a typical sell-side research assignment in the sell-side M&A process value chain. Here, the companies that might be interested in buying the said business is researched, depending on the synergies that the business division offers. Once companies are identified, the personnel list is drawn to finally commission a reach out to set up meetings. A business division depending on its financial performance could be sold anywhere between 6 months to 2 years. Valuations are driven by situations, markets, and negotiations.

Sell-Side Research- Investment Banks

Equity Research coverage forms the backbone for Sell-side research and analysis at Investment banks. Equity research reports are prepared with all the relevant information on the stock related to past financial performance, future financial projections, industry, economy, and other quantitative and qualitative factors. All the analysis leads to the recommendation in terms of Buy, Sell, or Hold for the stock.

Sell-Side Research Platforms and Market Makers

For the research services for platforms, all the administrative services could be potentially outsourced along with the technical aspects of managing a website or an app where the transactions take place

Stocks, Bonds and Foreign Exchange Sell-Side Research

Stocks, Bonds, and Foreign Exchange are the assets that are most traded across the globe. Quantitative and qualitative analysis along with macroeconomic or sectoral research could be potentially outsourced by the Sell Side Managers

Sell-Side Research- Private Equity and Venture Capital

When we talk about Sell-side in the Private Equity or Venture Capital industry, we are talking about further rounds of fund-raising or exiting a portfolio company for various reasons. The exits could also happen via IPO or an M&A with a bigger player. Here research plays a vital role in finding the investor or the M&A suitor. The analysis and documentation support can also be outsourced

Sell-Side Research- Real Estate

Here the sell-side research is mostly concerned about raising funds or selling the assets that may have completed their financial life for the original investor

Sell-Side Research Activities

Across the types of Sell-Side managers, the following services can be effectively outsourced without any dilution in the quality

Sell Side Research Activities

Sell-Side Research Activities

Company Profiling and Analysis

These may be the companies that may be suitable for M&A. Preparation of profiles by a third party also leads to unbiased views. A typical company profile includes meeting notes, earning analysis, business strategy, company overview, markets, management, and valuation. Sell-side due diligence is also part of this exercise.

Thematic Research

A thematic research report explores a specific sell-side market. It carries all the details about the market, major players, innovations taking place, its future, and the scope of the play. Thematic research also builds on inputs from the experts in those areas. Expert interviews are conducted to uncover the insights not available in the secondary domain.

Pitch Book

Pitch books are created to pitch the sell-side offerings. Pitch books are assisted for the design that complies with global financial standards. Well researched content is also prepared from the client’s feedback and market study

Fixed Income Securities Analysis

Analytics services to calculate various scenarios of returns for securities is a typical assignment. The scenario analysis of interest or returns changes could be built into the model to showcase the security analysis. Other quantitative and qualitative research can be effectively outsourced.

White Paper and PoVs

White Papers and PoVs are effective marketing tools for fund-raising. It shows the command of the Asset Manager on the market and the shape that it is going to take in the future. White Papers and Point of View documents are circulated to investors regularly for fund marketing. A well-researched and well-designed white paper goes a long way in creating a great impression. The research for these marketing materials could be effectively outsourced.

Mergers and Acquisition Support

M&A support span through list building, company profiling, due diligence, detailed due diligence, data room management, and post-merger integration. Much of the data-intensive work could be effectively outsourced to bring down the cost of acquisition. These projects are usually taken up by Investment Banks and Corporates looking for M&A.

Financial Modeling

Financial Modeling is an essential step to find out the valuation of the asset that the sell-side has to offer. A great financial model builds on reasonable assumptions and is flexible to take feedback from all stakeholders. This goes a long way in convincing the buy-side managers about the attractiveness of the deal. A financial model can be effectively outsourced to a competent agency that has experience in the space

Lead Generation Support

When an ideal profile of a buyer is shared, the outsourced team gets busy with finding similar firms, and within those firms, the relevant personnel who may be of interest to pursue further. These leads could be actioned as well, by the outsourced team. The result is setting up of relevant meetings for the sell-side to sell its offerings.

CRM

All funds that want to be in touch with all their potential investors use effective CRM to distribute fund documents, fund performance, newsletters, market reports, and other knowledge documents. A well maintained CRM is key to be in the eyes of investors continuously. The CRM needs to be populated with the relevant leads and pruned for irrelevant or outdated ones. The outsourced team delivers on this effortlessly. Also delivered are the knowledge pieces or white-labeled content that could be distributed to investors periodically

Structured Product Research

Marketing Documents, PoVs, and Business case or Investment case are prepared that are customized as per the client’s requirements.

Real Estate and Commodities Reports

A well-written report dealing with a GP’s area of expertise in Real Estate or commodities is not only useful from a marketing point of view but is also critical for creating trading strategies. A templated report for Real Estate and Commodities could very well be delivered by an outsourced team. All the content delivered is white-labeled and can be branded as per the client’s requirements.

Sell-Side Equity Research

Equity research using DCF modeling and comps is done to arrive at the stock price and the recommendations, to buy, sell, or hold. An outsourced team could track far more stocks than an internal team and can go into more depth. Tracking more stocks improves the sell-side decisions

Regulatory Reports

In markets where a regulator plays a vital role, regulator reports are critical for operation. Any new law, new regulatory changes, or compliance requirement is analyzed in detail in the report. The report also suggests the recommended business action to take advantage of changes or avoid complications.

Confidential Information Memorandums/ Private Placement Memorandums

CIM or PPM and pitch decks are the most widely used fund documents. They serve an important marketing function but at the same time need to comply with regulatory standards. An experienced outsourced team could deliver on the requirements that are comparable to global standards of fund documentation

Macro-economic and Sector Reports

Macro-economic reports are prepared for geographies where the sell-side is interested. Sector reports are made for the specialized sectors for the Sell-side. Both these types of reports could either fulfill the Marketing or Strategy requirements of the Sell-side.

Coverage Reports

These are specifically customized reports covering a set of stocks or industries like sell-side credit research reports.

Magistral Consulting is a specialized research and analytics agency that has helped multiple sell-side firms in the US, UK, Europe, and Australia in outsourcing operations and delivering cost savings. To drop a business inquiry click here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

 

 

Introduction to Sell Side and Buy Side

The financial world is full of transactions of all sorts. Whenever a transaction happens, there is a party who sells the asset and there is another party that buys the asset. The party selling the asset is the sell-side and the party buying the asset is the buy-side. Assets could be private or public companies, real estate, and other financial assets that give returns or value appreciation over time. Buy-Side research plays a vital role in the success of a transaction.

The parties could be an Investment Bank, A broker, A Company, A Hedge fund, An asset manager, or any other type of entity owning the asset or representing the owner

 

What is Buy-Side Research and Analytics?

Buy-Side Research and Analytics concern with identifying the full potential of the asset that is being bought. It attempts to answer the following crucial questions about the asset being transacted. Finding the asset itself to buy is the most crucial part of the Buy-side research

– Does the asset have the potential to generate returns or value appreciation over time?

– Is the asset valued rightly?

-Are there any risks associated with the asset? If yes, what are the risks?

-Is everything makes sense from a legal point of view?

-Are the documents right and portray the complete picture?

-Are there any other assets that may be more suitable?

Buy-Side research attempts to uncover all aspects of the asset to ensure the transaction achieves its objectives of maximizing returns for its investors

Buy-Side research is a regular function at institutions like Investment Banks, hedge Funds, Family Offices, Fund of Funds, Private Equity, Venture Capital and M&A departments in Corporates

Types of Buy-Side Research

Buy-side research could either be categorized as per the asset class like public companies, private companies, funds, etc. or as per the institutions like Investment Banks, Fund of Funds that undertake them

Type of Buy-Side Research

Buy-Side Research Types

Buy-Side Research- Hedge Funds

Hedge funds operate on multiple investment themes. However, the most common one, the long-short equity hedge fund uses the buy-side research which is predominantly equity research. This comprises researching the stocks which are being taken a position on, long or short. A fundamental analysis using methods like DCF or comparables is quite popular with hedge funds. Apart from researching the stocks, the industry, or geography, or any other aspect related to the stock or Hedge funds’ investment theme is also researched.  For hedge funds that take positions for the long term for a few stocks, the research is fairly detailed.

Buy-Side Research- Family Office

There is no set template or scope for buy-side research when it comes to family offices because investment mandates of family offices vary greatly. In family offices, buy-side research is mostly about equity research, manager research, asset research, and private company due diligence.  Quite a lot of partner and broker research is also common. Equity research as with hedge funds revolves around the fundamental analysis of the listed stocks. Manager Research is about finding asset managers who could deliver superlative returns as per the investment thesis of the family office. A typical example of this would be say finding hedge funds that are investing in China and have delivered more than 10% returns annually over 10 years or more, with moderate or little risk. The assignment involves the collection and analysis of huge data to find the best performing hedge fund managers for the family office.

Asset research is done for family offices with an investment philosophy around a specific asset. A typical example here would be getting into the details of a Real Estate asset deal or a Real Estate fund or a cryptocurrency-based fund.  Family offices work with all types of brokers, investment agents, and investment banks. Finding the right partner who has experience in the relevant area of investment and offers a competitive fee for the services is also common for family offices to research.

Buy-Side Research- Fund of Funds

Fund of Funds and Family Offices research funds to park their money. Here buy-side research concerns about finding the best manager to manage the funds. Information is collected on dozens of fund managers, analyze their performance for an objective evaluation on their potential to generate alpha.

Buy-Side Research- Private Equity and Venture Capital

Private Equity firms deal with both private and public companies whereas venture capital firms solely deal with private companies, sometimes very small ones. Buy-side research here revolves around the due diligence of the companies that are intended to be invested in. Another important aspect of the research here is finding the targets that fulfill the criteria for investments. A typical assignment would be to generate a list of all the SaaS firms with revenue more than $10 million, looking for Series B or beyond, with presence in the United States and products centered around blockchain.  This is typically followed by profiling the right set of companies for investments or acquisitions. For smaller companies, there is primary research that is done to talk with people who may have information about the industry and the company

Buy-Side Research- Investment Banks

Research here acquires as many types as the investment banks themselves. It can range from Equity Research as in the case of hedge funds or list generation and company profiling as in the case of Private Equity or Manager Research as in the case of Limited Partners or Fund of Funds.  The only difference here is that Investment Banks perform these tasks for their clients who may be looking for investments

Buy-Side Research-Corporate M&A

Bigger corporates continually evaluate targets for synergies with their business. Inorganic growth is a well-accepted way to grow. Not only growth but companies evaluate targets to acquihire, getting a tech, enter geography or industry or to eliminate competition. Buy-Side research in these cases pertains to building target lists as per the acquisition criteria and profiling companies.

Characteristics of High-Quality Buy-Side Research

Whether one is looking to outsource Buy-side research or building an in-house function. These are the qualities of good buy-side research, that should be paid attention to:

High Quality Buy Side Research

Characteristics of high quality buy side research

Depth of Research

Research on the surface seems easier, but intellectual curiosity is required to get into the depth of the information presented. A company that appears to be satisfying a criterion may not have any business in the key area that is the source of synergies. This requires studying lots of data and information to make sure if the target has all the right attributes for evaluation. Primary research and ghost interviews help the cause of getting into more details. Asking the right questions to management and analyzing the documents provided by the company holds the key to get into in-depth research.

Rapid Research

Deals are time-bound. Sometimes it requires quick and dirty analysis and other times it requires studying hundreds of documents over months. Whatever is the case, your outsourcing partner needs to be reliable about sticking to the promised timelines. Sharing interims before the finalized deliverables help too.

Expertise

Expertise in buy-side research ensures research is being done the right way. It ensures the right questions are being asked, the right information is being sought and the information is analyzed with all relevant angles to arrive at an objective opinion. Buy-side research outsourcing partner needs to be an expert in the financial sector generally and buy-side research particularly

Outcomes

All the research that does not yield any outcome is useless. Researching a target and then not acquiring it because of red flags pointed by research is still an outcome, which saves millions of dollars for the client. Whatever is the case the research outsourcing partner needs to keep an eye on the business outcomes of their research activities.

Accountability

Most research partners are great order-takers. If a list is to be generated, it is generated as suggested. But a great research services partner goes a step further and takes accountability. After making the list from secondary research, they do primary research to make sure the information collected from secondary sources is correct. They ask the right questions from Asset Managers to ensure the client gets what they are looking for and not “unverified” data in an excel sheet.

Engagement Flexibility

A great buy-side research outsourcing player offers complete flexibility to their clients, with scalable engagement models, and have contracts that carry no significant exit barriers. Whatever is the engagement model the work quality is not hampered

Magistral Consulting has helped multiple Investment Banks, Family Offices, Hedge Funds, and Private Equity firms in outsourcing buy-side research functions. It has clients based out of the United States, the United Kingdom, Europe, and Australia. To drop an inquiry get in touch here

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Introduction to Real Estate Financial Research

Real Estate is considered one of the golden investments that are pretty safe from the vicissitudes of financial markets. Everyone can’t own a piece of cash-generating real estate as it requires massive investments. That is why various real estate-based financial instruments help investors get a pie of the Real Estate market and enjoy the share of the returns.

 

At the same time, the Real Estate market requires comprehensive research to ascertain the quality of assets, to be successful. Real Estate finance is even more tricky.

 

Magistral Consulting specializes in operations’ outsourcing for Asset Management players specializing in RE across the globe. Our clientele comprises the following types of RE Financial players

Magistral Services for Real Estate

Magistral’s services for Real Estate

Real Estate Private Equity: It’s a form of Private Equity which has an underlying asset in the form of RE or RE based stocks. Players choose their area of expertise depending on the specialization of partners or picking up an asset class that is growing rapidly. Multiple forms here can be elders’ living, self-storage, infrastructure, redevelopment funds, renewable energy-based infrastructure, meth farming lands, or several other types of residential and commercial Real Estate.  The Private Equity fund invests in the RE stocks, REIT stocks, or RE ETF and gives returns in the form of dividend or capital appreciation.  There are also multiple RE based hedge funds too on similar lines.

Real Estate Investment Trust (REIT): These funds are invested more directly in RE as compared to Real Estate Private Equity. After buying the Real Estate, these funds actively manage the asset for maintenance and rental collections and yields. They then distribute their earnings in the form of dividends to their investors. REIT stocks are also traded bringing in capital appreciation or profits from trading. Many investors including RE Private Equity apart from Investment Banks and other Financial institutions buy into REIT stocks.

Real Estate Owners/ Developers: These are the direct owners of the Real Estate or developers of the properties. They may have land and may look for funds from investors to develop it and then distribute the profits accordingly.

Real Estate Consultants/Real Estate Brokers: Like the Real Estate owners, property consultants and brokers may also have interests in collaborations for development and fund-raising.

Magistral Consulting services cover the full range of operational support for all types of players in the Real Estate finance business. Here are our lines of services offerings:

Real Estate Fund Raising and Exits

These assignments are taken on a retainer basis. It includes all the operations’ support that is required for fundraising. This includes services like Identifying Limited Partners that may invest in a given asset, funding strategy, funding environment analysis, pitch deck, investor committee presentations, equity waterfall analysis, and several other similar assignments to close the funding round as soon as possible.

Real Estate Pre Deal Support

The service is related to document and operational support before a deal. This includes preparing investment memorandums, financial modeling that finds out the Real Estate valuations and returns, market analysis, property profiling, data, and data rooms’ management. Real Estate due diligence is also performed under this bouquet of services

Real Estate Deal Structuring

These are the services offered during the RE deal. This includes Real Estate modeling, rent rolls analysis, rental comps, equity waterfalls, funding requirement analysis, and investor committee memorandums

Real Estate Portfolio Management

This includes services like board updates, occupancy and yield trackers, Real Estate yields, REIT dividend calculations, tracking real estate fund indices, rent roll analysis, expenses and budgets, Real Estate Fund Accounting, fund administration, and accounting, fund fee structures, and portfolio dashboards.

Advantages of Operations’ Outsourcing for a Real Estate firm

There are multiple advantages of outsourcing for a Real Estate based investment firm or an Asset Manager

Advantages of Outsourcing

Advantages of Outsourcing for a Real Estate Based Asset Management firm

Everything in-house will bring down your pace of growth: For any organization, whether it’s a REIT, RE Private Equity, or a RE based Asset Manager, growth is good news. But it also brings with it, huge uncertainties in terms of cash flow. Outsourcing here acts as a temporary patch. You get the project, you outsource it till the client stabilizes, and then decide what to keep in-house and what to outsource. It brings down the cash flow risks dramatically. Outsourcing keeps pace with your project flow and you don’t wait for months for the new associates to join you.

Quality concerns around outsourcing are unfounded:  Another factor that is sighted against outsourcing is quality concerns. Some of the biggest Real Estate players have outsourced their operations to low-cost countries like India. We also encourage clients to have low-cost pilots to ascertain quality before deciding on a larger scope of work to be outsourced.

Unmistakable advantages in terms of costs: The complete business case of outsourcing is usually built around saving costs, and it is very easy to understand the advantages here. Depending on your location in the US, Europe, the UK, or Australia, outsourced analysts are cheaper in tune to 30% to 80% of the costs of onsite analysts. There are further savings in terms of lower supervision time, costs of databases, skill bandwidth of the whole outsourced team as compared to a few onsite analysts, and the flexibility with which new resources could be added or removed

If you are small, you can’t do without outsourcing: It is understood that outsourcing will bring mighty savings on top of the headcounts in thousands. Though that is correct, there are immense benefits for small setups too. A small set up sometime may miss some of the critical skills that bigger Real Estate players have.

Assignments move at double the pace: Outsourced team acts as an extended team to the onsite team. With time zone differences, it is like the combined team is moving at double the pace working in the day and the night as well. So an assignment that would have taken 30 days to complete may see itself being finished in 15 days. Agility does have value in the marketplace.

No exit barriers from contracts: If you are not happy with the quality, timeliness, and responsiveness or have any other issues with your own business or the quality of services, the contracts have a swift exit clause. You can terminate the contract with a few days’ notice.

Competitive pressures regarding outsourcing: Real Estate Financial services are increasingly outsourcing their operations. It gives them an immense advantage in terms of costs and hence pricing their services to their clients. Someone who is doing everything in-house will be costlier without adding any additional value to the client. Competitive intensity regarding outsourcing is huge, and it may force everyone to outsource at some point. Early movers may rope in significant rewards though.

Hiring an individual Vs. Hiring a team: When you outsource, you don’t hire a single individual, you also hire the expertise of a team that is working across the various RE players for years. This means an international standard quality being delivered on day 1 as compared to months for an onsite hire.

Magistral Consulting has helped multiple RE firms in outsourcing their operations to build in significant cost savings. To drop an inquiry get in touch

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

Introduction

Equity Research of listed stocks forms a major part of operations in Hedge Funds, Investment Banks, and many Asset Management firms.

Though methods may differ, all the exercises related to equity research mostly pertain to finding the intrinsic value of the stock and then inferring if it’s overvalued or undervalued currently, prompting buy sell or hold recommendations for the asset managers or their clients.

What makes an equity research exercise comprehensive?

Though equity research exercise could potentially be a theoretical exercise where an Equity Research analyst puts in a few hours’ of efforts, crunch numbers, and comes up with a recommendation.  These models are almost always prepared and just need P&L, Balance Sheet, and Cashflow numbers, which are available in the public domain for a listed stock, fed in, to find out the valuation and the recommendation for the stock.

It is however the further details that determine the quality of the research. These are a variety of sources, qualitative inputs and their quantification, Evaluation of the ongoing news and buzz related to the stock, social media activity, rumors, and the subjective calls of analyst that makes the difference. It’s amazing that some analysts even track the brand of the watch that the CEO wears to the analyst conferences. They make subjective calls on the stock on an information point as minute as that or say body language of the management in a conference call.

 

If a stock is to watched as closely as needed to take calls worth millions, it’s not possible for an equity research analyst to proceed in a templated way for all the stocks she needs to track. It needs to go much beyond that.

Equity Research Inputs

Parts of a comprehensive Equity Research exercise

Here is what differentiates a comprehensive analysis from a basic one

Sources of Information: Sources of information if more the merrier. Sources of information if diverse allows us to analyze the stock closely. For example, a database that carries information about all the legal cases pending against a company would add color to the analysis that will have a material impact on the overall recommendation for the stock. Usual sources of information are P&L, Balance sheet, and cash flow statements, all of which are publicly available for a listed stock apart from news about the stock, regulatory filings, 10Ks, conference calls, and ESG related compliance documents.

 

Forecast and Assumptions: A financial forecast can easily be put together sometimes by just extrapolating the past growth in the future. That is a simplistic but not correct way of doing it. The heart of a financial or earnings forecast is the assumptions made to arrive at the same. All assumptions need to be reasonable and preferably vetted by industry experts. Companies may be bullish about their latest strategy and its financial impact, but that needs to be looked at cautiously if at all it is going to lead to any impact, and if yes, how much. That is where industry studies come into play. A company forecast needs to be compared with industry forecasts and if the company’s growth forecasts are more than that of the industry, has there been any past instances when the company had beaten the industry forecasts. For example, if a healthcare company is planning to launch equipment that will take a leadership position in five years, has there been any past instance for this healthcare company to take a leadership position within five years of the launch in the past? The key to a robust model is going into detail about all the assumptions and making sure all assumptions are validated by past numbers.

 

Company Valuation Analysis

Equity Quantitative Research methods aim at valuing the company using more than one method to see if all valuations are consistent with each other. If there is a huge variation in valuations of companies by different methods, the analyst needs to arrive at the best suitable valuation with sound reasoning. The most common equity research models to find out the valuation of a company are DCF modeling, Relative Valuation, Sum of Parts, and Risk Assessment. DCF that stands for Discounted Cash Flow analyzes all the future cash flows of the company and discounts it to the present value. Relative Valuation compares the company valuation with peers to see if it is relatively undervalued or overvalued. The Sum of parts breaks a big company into smaller chunks and finds if the sum of all parts of valuations of a company is equal to the overall company valuation. The risk assessment identifies all the risks and quantifies the material impact of risks into the valuation

 

Qualitative Assessment

Numbers do tell the story but miss while indicating the future, which is unknown. That is where the qualitative inputs come into play. An experienced analyst can convert these qualitative inputs into quantitative ones that impact the valuation. Some of these qualitative inputs are quality of management, Competitive intensity in the industry, ESG initiatives and risks, and analyzing Porter’s 5 forces. It’s to be noted that Porter’s 5 forces is a highly qualitative model and needs to be put on a quantification scale.

Different institutions approach equity research differently depending on their business and operational needs. Here is how Equity Research differs across institutions

Equity Research for Investment Banks

Equity Research at Investment Banks is as much as a Marketing exercise as it is operational. Usually, an Investment Bank would send stock recommendations to all its current and potential clients. These recommendations are sometimes not detailed as the detailed research is kept for high paying clients. An equity research report is prepared for every stock. The report is templated and carry similar content for all the stocks that the bank tracks. It also suggests the buy, sell, or hold recommendations along with the price range to expect for each stock. Detailed equity research is also done for the buy-side. There are multiple research report templates that are available with an Investment Bank.

Earlier the research cost was added to the brokerage cost for an investment bank. Now a regulatory notification in Europe bars Investment Banks from clubbing brokerage and research costs together. This means now research needs to be high quality and needs to be provided only when the client demands. It’s just a matter of time that these regulations catch hold in the United States and other financial markets across the world.

Equity Research for Hedge Funds

Equity Research for hedge funds is done towards the aim of portfolio management and taking long and short positions regarding listed stocks

Hedge Funds are quite secretive about the methodology they follow while picking up stocks. Sometimes the secrecy is warranted as they have something that is really unique but most of the time it’s just a marketing gimmick to avoid further questioning about their methodology. Many claim to use Machine Learning and Artificial Intelligence to pick up the stocks. Equity Research in Hedge Fund parlance is the most critical part of Operations. There is also a huge reliance on Technology with trades mostly intraday and sometimes in milliseconds!! But there is nothing that has replaced the good old fundamental analysis.

Hedge Funds also specialize in technical analysis apart from fundamental analysis. Technical analysis uses mathematical formulas to project trends and thus the future stock price for short term trades.

Equity Research for Private Equity

Private Equity usually deals in Private stocks but sometimes they do pick up stake in listed companies as well. Equity Research in Private Equity is very different than what is done in Hedge Funds and Investment Banks. It is because mostly Private Equity is interested in buying a significant stake and thus has far more information and management bandwidth at its disposal. It uses that leverage to get and analyze information that is usually not available in the public domain.

 

Equity Research for Asset Managers

All other forms of Equity Research vary in complexity and methodology but mostly sticking to finding the intrinsic value of the stock with the aim of finding undervalued stocks for investments. Some Asset Managers specifically perform equity research for retail investors.

 

Magistral’s Approach for Equity Research

Magistral is an equity research firm that focuses on Fundamental Research to find out the intrinsic value of a stock using multiple sources. Our methodology takes into account multiple sources to start with and those sources are continually refreshed to update the model to carry the latest intelligence. We also prepare customized Equity Research report. Here is how our Equity Research Process looks like

Magistral' Equity Research Approach

Magistral’s Equity Research Methodology

 

Our equity research services are customizable and scalable as per clients’ requirements. Magistral has delivered multiple Equity Research projects in the past

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Introduction to Fund Strategy

Fund strategy refers to the planning and research before launching a fund to ensure maximum chances of its success in the future. Success here is usually defined as better returns for investors as compared to their peers.

A fund strategy is attempted in multiple steps to ensure all moving parts work together to bring in the desired results. Here are the major steps that are required to acing a fund strategy and marketing effort.

Type of the fund

It is usually no brainer when a fund starts its operations. The type of the fund depends on the experience of the founding partners. Personnel who are most experienced in Hedge funds would usually go for starting a hedge fund. When a bigger fund launches a separate arm or ventures out in a different domain, then there is some work involved in finalizing the type of fund to go for.

While deciding the type of the proposed fund, the following parameters play an important role:

 

What investors want: The key here is meeting investor expectations. Some investors limit themselves to returns generated while others may get into the details like the social impact that the planned investments make. Big investors usually budget for investments like ESG, impact, or social investments. If a proposed fund has a big investor who is ready to support and has specific needs, it’s better to align the fund strategy with that of the investor needs. This is all the more important if these investors are early or only investors.

What generate returns: Many times fund managers also need to check the track record in terms of returns for various other types of funds and make a compelling case to go for a specific type of the fund

How fast your investors need returns: While a Hedge fund may start showing returns as soon as stock markets run high, A Private Equity or a venture capital fund may take even a decade to show returns. Understanding the expectations of investors in terms of returns period horizon is the key

Team’s capability: Here the natural talent and experience of fund partners come into play. If partners who have an illustrious career in hedge fund management come together, it is obvious that they should start a hedge fund. It will also be easier to raise funds in that case by showcasing the experience of founding partners to investors

Fund Strategy

 

Here are the major type of funds that could be thought of at the first stage and the further fund strategy accordingly required

Fund Strategy Steps

Major Steps Required Towards Fund Strategy

 

Hedge Funds: This fund invests in listed stocks primarily. Long short equity is the most popular option. Usually, funds go for more long calls than short ones. Here, Hedge Fund Strategy needs to identify geography focus, industry focus, long-short calls ratio, stock strategy (blue-chip, value-based, etc), holding horizon (long term, short term, etc), trading norms (AI, manual, process, etc), the economic rationale (macro-based, etc.,). Sometimes an experienced founding team understands what makes sense to them as per their experience but still a fresh eyes’ perspective on where the opportunity is, going to help. This requires massive data and information collection efforts to understand where the markets are headed from the returns’ perspective. Hedge fund strategy types are numerous and careful evaluation is required along with Hedge Fund strategy outlook.

 

Private Equity Fund: This fund invests in private companies and sometimes in public companies and takes substantial stock positions in their investments. The idea is to have a significant portion of the stock holding to impact the business decisions. Skills required here are way different from what is required in establishing a hedge fund. Hedge Fund requires more financial skills whereas managing a Private Equity fund requires more company operational skills. Private Equity fund strategy here concerns the industry focus, geography focus, stake (controlling, minority, etc.), investment focus (late stage, public companies, family-owned businesses, etc.). Along with the experience of founding partners, a great deal of research on returns generated by various types of PE funds help go a long way. This fine-tunes the fund management strategy.

 

Venture Capital Funds: Quite like Private Equity, but the venture capital fund is smaller in size and places relatively smaller bets on early-stage private companies. This form of investing is high risk and high returns that bet aggressively on companies that may become big in the future. Venture Capital fund strategy identifies geographic focus, industry focus, stakes (minority, control), investments focus (seed, early-stage, late-stage, etc.) Here again apart from the experience of founding partners, research on emerging trends help go a long way

 

Real Estate or Infrastructure Funds: These funds invest in real estate based assets to generate regular returns over a long period. This form of investing carries lower risk and are comparatively more stable. Upside returns are also moderate as compared to other forms of investing. A Real Estate fund strategy would require to finalize the asset class (public infrastructure, hotels, low-cost housing, self-storage, etc.), geographic focus, Government incentives behind some forms of investing, potential returns, etc.

 

Crypto-based funds: This is a relatively smaller and new development. The fund manager invests in different forms of cryptocurrencies as an asset class. Phenomenal returns from Bitcoin has given a boost to this category.  Here the cryptocurrency fund strategy development would be around the specific cryptocurrency that should be invested in and how to minimize the brokerages being paid for maximum returns

 

Family Office or Fund of Funds: This is for an investor himself. It usually works in a combination of parking money in various funds and doing direct investments as well. Here the strategy would be to find the best asset manager or performing funds, finding great direct investment or co-investing opportunities, and regularly scanning the environment for tracking the emerging investment class.

 

Bond Funds: There are debt funds and funds that are based on returns from sovereign and corporate bonds. These are bond funds. Here the strategy is about finding the bonds that produce the best returns with comparably lower risks. Bond fund allocation strategy also needs to be identified in this case.

 

Others: There are multiple other funds that emerge due to arbitrage opportunities created by policy changes by Governments. Assessing the fund strategy in detail along with statutory requirements is the imperative of fund research here

Fund Raising and Fund Marketing

 

Fund Raising is the most critical step in the lifecycle of a fund. Fundraising efforts primarily end up deciding the fate of the fund singlehandedly.

Fund Raising Steps

Steps Required for a Successful Fund Raising Strategy

 

Seed funding is received by self, family, friends, or the personal network of the founders. Once the seed funding is secured, a wider reach out to an international or broad set of investors is required. This reach-out is usually done over emails, social media, investor websites, fundraising platforms, and several other channels. There are many databases and information services providers that deal with the contact information of investors.

Hedge Fund Marketing strategy decides whether the fund will be able to garner the requisite funds. A good Hedge Fund marketing plan suggests the type of investors to be reached out to.

Reach out leads to investors showing interest in a fund and then set up meetings. Once the meeting is set up, Partners are expected to present their ideas about their style of investing and further details about the fund. Bigger funds rely on international fund marketing for the fundraise

Another critical step is to prepare the fundraising documents like pitch deck, Private Placement Memorandums, Confidential Information Memorandums, 1 pager, Teasers, hedge fund marketing documents, hedge fund marketing deck, fund marketing materials, and details about the previous experience and investments by the founding team.

Fund Administration and Investor Relations

Once the money has been raised, of-course the fund gets busy in operations which relates to parking the money in a way that generates superior and safe returns for its investors. Apart from that activities related to the fund administration are taken up. It’s about accounting, handling trade exceptions, keeping books, calculating taxes for investors, and several other tasks that show, investors that their money is in safe hands. This brings further investors to the fund. The investment strategy for the fund is implemented in this stage. A fund with a successful track record of execution attracts far more investors than a fund with no considerable experience or track record.

 

Launching bigger follow-on funds and funding rounds

Once the fund is successful it branches out in the same or different space and raises more money often at terms that are more favorable to the fund manager than it was while raising the maiden fund.

 

Magistral Consulting provides in the space of Hedge Funds, Private Equity, Venture Capital, Real Estate, and Family offices with Fund Strategy and Fund Marketing services. It has successful fundraising strategy templates that work across the type of funds. Please drop an inquiry here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

ESG investing is one of the fastest-growing trends in the investment world. Asset Managers are moving towards ESG investing at a great pace, not only due to regulatory compliance requirements but also because ESG investing has been proven to show better returns and alpha in the past.

What is ESG investing?

ESG stands for Environmental, Social, and Governance and ESG investing relates to evaluating these parameters while analyzing a potential investment.

ESG which was a niche investing technique only a few years back is now the centerpiece of the majority of the investments being evaluated globally. ESG investing trend has seen a massive uptick. The global market for ESG touched $30.7 trillion in 2018 representing a growth of 34% over 2016. It is expected to touch $35 trillion by 2020. The global coronavirus pandemic of 2020 will give further fillip to this trend. Multiple ESG funds, that specialize in ESG based investments is a common theme now

Why is ESG investing important?

ESG specifically touches on some aspects of investments, that are proven to generate superior returns in the past. Investments that are evaluated properly on ESG metrics are more resilient to inherent business risks. ESG investment performance has been better than other investments. Even ESG ETF has shown better performance compared to peers.

ESG of course is the only sustainable way of investing to ensure that the planet we live on, is not distorted and polluted beyond repair and probably the only strategy that could guarantee a really long term performance

Here is a typical example of how ESG could play a vital role in assessing the reliability of the ESG investment in companies

Environmental Factors

Here the relevant factors are resource use, emissions, environmental opportunities, pollution, waste, green supply chain, carbon footprints, and everything else touching the environmental aspects that a given industry or a company operates in. If a firm is on the wrong side of the environmental side, there could be an enhanced risk of running into bans and penalties, all of which poses a long term bottom-line impact

Social Factors

Here the factors relate to society, people, and the workforce in general. The relevant factors here would be Workforce, Social Opportunities, Data Privacy, and Product Responsibility. Social factors are the most important factor for any people-based business. If the “people” part of the business is taken care of, it’s imperative that investments would generate desirable returns in the future, because “people” forms the most important lever for the business profitability

Governance Factors

Governance includes factors like Risk Responsibility, shareholder rights, and CSR initiatives. It is the ability of the management to discharge its fiduciary responsibilities towards the investors. History is full of examples like Enron where Governance made the difference between success and failure. Governance is at the heart of trusting the financial performance and documents related to an investment.

Hence it’s evident that ESG investment for funds like Hedge Funds, Private Equity, Venture Capital Mutual Funds, and ESG Bonds may lead to superior alpha

So, ESG aspects need to be analyzed in detail before making an investment decision.

ESG across the investment value chain

ESG analysis framework for investments for asset management plays its role across the full value chain of investing. Here is how ESG aspects need to be analyzed across the investing value chain so that ESG risk is minimized

ESG across investment value chain

ESG across the investment value chain of companies

Deal Origination

ESG has to play a significant role in the deal origination stage itself. All the deals that are in the pipeline need to go through a quick and dirty assessment of ESG. Here the key is to have the relative comparison across opportunities and still not diving too deep into the evaluation. Also, care needs to be taken to identify the investments that have painted themselves as ESG investments, without following the principals in essence.

Due Diligence

At the stage of Due diligence, the quick and dirty analysis changes into a detailed one. Here the second level of data is collected. Also involved in the process are ESG specialists, data and reporting specialists, and the business experts to have a holistic view of the ESG preparedness of the investment. Also during Deal execution, while arriving at the valuation of the opportunity, the analyst needs to assign the relevant weights to the ESG related red flags and advantages. A benchmark with available ESG standards from ESG rating agencies is performed. A detailed ESG questionnaire is also prepared for the due diligence

Portfolio Management

ESG plays out even after the investment decision. The portfolio needs to be continually monitored for ESG related red flags, violations, and the efforts made and required in the ESG direction. A centralized Project Management Office for ESG efforts of all portfolio companies goes a long way in establishing common standards across all portfolio companies. ESG policy compliance and ESG disclosure norms are also monitored and managed.

Reporting and Compliance

ESG reporting and compliance standards are still evolving. Europe particularly has taken a lead in ESG compliance over the US and APAC. It’s a matter of time that other geographies also catch up. Even Europe’s standards are not detailed to the second and the third level. This is expected to change in the future. Standards like GRI, SASB, TCFD, and several others across geographies need expert intervention for compliance

Challenges related to ESG data collection

There are multiple challenges related to the data collection process when it comes to ESG. Here are the major challenges

ESG Data Challenges

ESG Data Challenges and Solutions

Data is not scalable: Due to the patchy nature of data available across the investment avenues, there are limited options for streamlining and scaling up the data operations

Customized Data Requirements: Every Asset Manager has a different ESG mandate and there is no one size fits all approach to data collection. Every data collection exercise needs to be customized to effectively capture information that serves the investment mandate

Voluntary reporting: Though compliance standards are evolving, still most data reporting is voluntary. This presents challenges in evaluating and comparing data points across investment avenues.

Incomplete Data: Data many a time is incomplete and there is a huge dependency on proxy information to complete the picture

Incomparable formats: The available data are spread across geographies and varying reporting standards. It presents challenges in comparing the data points across multiple investment options

Lack of reliable sources: There are some sources for ESG data and ESG index but there is none that is fully reliable. Hence there is a need to depend on multiple sources to complete the picture of ESG evaluation

A solution to the Challenges

Magistral Consulting offers a full suite of data services when it comes to ESG data collection, treatment, and presentation. Magistral relies on ESG experts along with data research and visualization experts to present a holistic picture. AI and automation tools further reduce the cost of data collection. All the solutions are customized as per the needs of Asset Managers so that the solution helps the Asset Manager in achieving a superior alpha. ESG research is performed by experienced ESG analysts

The unique advantages of Magistral’s solutions are ESG operations cost reduction, and the panel of experts on ESG, SME, ESG consultants, and Investment Research

Magistral’s ESG Services Framework

Magistral follows a customizable plan to offer ESG data services.

ESG Framework

Magistral’s proprietary framework for ESG evaluations

Here are the major aspects of the framework:

Data Collection: The key is to access as many data sources as possible about the ESG stock. Even when the complete data is not available, opinions, insights, and experts’ views help. ESG investing criteria is crystallized

Alignment with the mandate: Although a wide array of ESG data is collected but not all data points may be relevant for the ESG investing for the Asset Manager. In this stage, data is aligned with the investment objective, investment philosophy, or the investment mandate. This is where the views of Asset Managers are built into the process. ESG investing strategies of the Asset Manager is also built-in.

Modeling: All customizable aspects are built into the model so that investment avenues could be objectively compared and evaluated. ESG ratings or ESG score are arrived at, in this stage

Reporting: Reporting could be done through customized tools like web-based distribution, excel models, or cloud sharing tools. Effective visualization for ESG metrics is incorporated to pass on the right messages.

Magistral Consulting has helped Hedge Funds, Bonds, Private Equity, Investment Banks, Mutual Funds, ETFs, and Venture Capital in analyzing ESG aspects of investments across the globe

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

What is Due Diligence?

Due Diligence Definition: It is an exercise done to check the quality of an investment before committing funds to it. There are lots of claims that are made by an asset manager, a company founder, a real estate developer, or anyone else who is interested in selling the asset or a stake of it thereof. These claims need to be satisfactorily validated before the funds are committed to buying the asset or a part of it.

 

Due Diligence in Finance

Due diligence is a general term of analyzing the investment before committing the funds. Financial due diligence concerns with the assets that generate returns and are financial in nature like private or public companies, start-ups, hedge funds, real estate, and real estate funds.

 

What does due diligence consist of?

Due diligence for financial aspects validates the claims of the seller through a detailed study of the documentation supporting the sellers’ claims. The Due Diligence period depends on the size and the nature of the asset on which it is being performed. The speed at which the data is made available also impacts the Due Diligence period. A start-up which is a small set-up could be checked in say a few weeks’ time, whereas bigger corporates may take months before the exercise for the whole company is performed.

Due Diligence Process

The process sometimes may take long periods and may require expertise. An external consultant can be hired for a Due diligence fee to make the process more objective

Here are the steps that are required for a detailed Due Diligence exercise:

Establishing the purpose of the investment

The investor needs to identify the purpose of the investment to do due diligence on the relevant aspects of the financial assets. For example, an investor wants to invest in a start-up with an aim of explosive growth in the next few years, so that he could exit the investment with massive gains. Or another investor wants to invest in a Real Estate fund specializing in infrastructure to generate a regular flow of income. Establishing the purpose clarifies the areas where the due diligence should be focused on. This leads to the development of the Due Diligence framework

Identifying the focus areas for Due Diligence

Once the purpose is established, investors should identify their focus areas for due diligence accordingly. In the above example say for the start-up the future growth is very important. What are the factors on which the future growth would depend? These are the market in which the start-up operates, its competition, its product, the capability of the team, etc. Similarly, for the Real Estate investment, the quality of underlying assets is important so that the investor could be assured of regular returns. This leads to doing due diligence on the type and quality of investments done by the RE fund, contracts signed, leases, rent rolls, tenants, users, market conditions, and everything else that may have an impact on the RE yield, where the fund operates

Preparing Due Diligence Questionnaires

A questionnaire needs to be prepared for each focus area. The way it works is that one starts with a broad question and set of other supporting questions. The questionnaire is followed by the collection of all the relevant data and documents. The seller provides the due diligence documents through data rooms, that could be physical or virtual. Investors or their representatives go through the details of all the data and documents and ask for clarifications if that is so required. A Due diligence checklist is also prepared to find out all the relevant supporting documents. A Due Diligence Analyst keeps track of the documents in the data room and the actions completed.

Preparing Due Diligence Report

Once the study of all the data and documents is complete, the service provider prepares a due diligence report for the investors. It carries all the details about the investments, outcomes that could reasonably be expected from the investments, and red flags that the investor should be concerned about. Some reports clearly suggest if the investor should go ahead with the investment at all

Magistral Consulting has experience in conducting due diligence for start-ups, private companies, public companies, and funds. It covers all aspects of due diligence done by Private Equity, Venture Capital, Investment Banks, Family Offices, and Fund of Funds. Here are the broad types of Due Diligence

Types of Financial Due Diligence

Various types of Due Diligence performed by Investment Banks, Private Equity, Venture Capital and Family Office firms

Due Diligence of a Company

Due diligence for companies is typically done before investing in or Mergers and Acquisitions of companies. This is also done before buying a business. The areas covered in the process largely depend on the size of the company and the purpose of the investment. While doing due diligence for companies, the following are the areas that should be looked into

Financial Performance-Past and Forecast

This is very critical for bigger companies. As usually the investments are done for returns from stocks, which is directly related to the expected financial performance of the company. It also impacts company valuation and stock price. Past financial performance is pulled out and compared with regulatory filings. Also studied are the market, trends, cyclicity, inventory, and other financial aspects. P&L and balance sheets are dived into to find any outliers. This is compared with peers in the same industry to look for anything that may raise suspicion. Forecast assumptions are checked for validity. Departmental budgets are scrutinized for authenticity and to find improvement potential. Previous audit reports are seen for regularly repeated observations. Usually, for start-ups, this is not a critical factor, as they are still in process of streamlining the revenue sources. Still, for start-ups that are looking to raise funds beyond seed or Series A, it’s imperative to get into the details of financials.

Strategy

Another aspect of companies that need closer careful evaluation is their strategy. The growth rates of the markets, and product categories, it plans to expand into is closely studied. It is checked if the current portfolio of its products and services is the most favorable from cost and growth perspectives. Risks are also evaluated along with the competition of the company. In the case of Start-ups and smaller companies, growth rates, competition and trends are looked into closely to verify the assumptions made while valuing the company

Operations

various other functions of the company are also studied under this like Manufacturing, Procurement, Human Resources, Technology, etc. It is evaluated with a lens of efficiency and cost. This is to evaluate the scope of operational efficiency in case the ownership of the company changes hands. Again this is not so important for smaller or start-up companies.

Team

Due diligence on the team is very important for start-up companies. Their experience, skills, qualifications, and past achievements are looked into to have a comprehensive view of their capabilities and future potential. This factor is not that important in the case of large companies where this exercise is being done for M&A

Product

This is very important for SaaS-based tech start-ups. The product needs to be checked as to where is it in the development stage. If it is fully developed, whether its UI, features, etc. are working properly. If not how much time and effort will go into developing the product. Is there even a chance of whether the team will ever be able to develop the product? For bigger companies, the entire portfolio of the product is studied to find out winners

Customers

In the case of B2B health of the biggest clients is checked out to suggest the sustainability of the market for the company. In the case of the B2C demographic profile and its future changes are analyzed to understand any revenue impact in the future. For SaaS-based tech companies, the nature of customers is understood whether they are free, freemium, or paid and the average ticket price to understand the sustainability of the business in the long run

Due Diligence of Funds

Due diligence of funds is usually done by Fund of Funds, Family Offices, and other investors who are interested in investing in the fund. The process, in this case, is different from the  process followed in case of companies

Activities of Due Diligence

Major differences between due diligence of companies and funds

Here are the items that are looked at while performing due diligence for the funds

Fund Performance

This is true for both Real Estate and Hedge Funds. All the technical parameters related to the fund performance are looked at while making a decision.  This evaluates not only the returns that the fund has generated in the past but also the volatility and the risk taken to produce those returns. Funds’ performance is benchmarked with the indices that carry no investment risks

 

Team

Here the profile of Fund Managers is looked into. Their experience qualification and past performance are looked into while evaluating the team. This is again true for both Hedge Funds and Real Estate funds

 

Investment Focus

The investment focus of the fund is analyzed to see if it is in line with the expectations of the investor. If it is a hedge fund that its markets, stocks, and geography are considered whereas if it is a Real Estate fund then the Real Estate Class and geography are considered for the exercise.

 

Underlying Portfolio

This is slightly more important in the case of Due Diligence of Real Estate funds as compared to Hedge funds as the Hedge Fund portfolio churns more often, whereas the Real Estate portfolio is more or less permanent. The quality of the underlying portfolio is looked at for the potential of generating regular returns. If there are any red flags in any of the properties, the same is highlighted. Real Estate properties and assets are analyzed for price trends, forecasts, rent, value increase, neighborhoods, and future potential of the asset.

Markets

This is more relevant for niche Real Estate funds that are dealing in specialist RE categories like handicap hostels or Self-storage. The potential in the underlying theme is objectively evaluated to find out the potential of returns that could be generated in the future

 

Magistral has experience and capabilities in providing Due Diligence Services to global clients in the space of Private Equity, Venture Capital, Investment Banking, and Family Offices

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

Introduction- What is Portfolio Management?

Portfolio Management Services are the services that keep a portfolio of investments healthy and prime them to produce expected returns on investments.

Sometimes portfolio management is passive, where it mostly deals with analyzing the assets and its performance. In some cases, portfolio management is quite active, where the manager is expected to get into the operations of the invested company and make sure its operational aspects are fine-tuned so that the asset enhances its intrinsic value

Whatever is the underlying nature of the portfolio, portfolio management concerns about managing the asset properly and prepare it to give superlative returns for the investors

What constitutes a Portfolio?

A portfolio has a different meaning for different institutional investors. A Venture Capital or a Private Equity firm may mean invested companies as its portfolio. These companies can vary in size. Sometimes they are start-ups or smaller companies, whereas some other times they could be multibillion-dollar enterprises with businesses in many countries. These companies could be public or private

A Hedge Fund calls the stocks where it has invested as its portfolio. These are publicly traded stocks and trade on global exchanges.

A Fund of Funds will call its underlying Hedge Funds as its portfolio. A Fund of Funds invests in funds like Hedge Funds. So all the hedge funds where it decides to park the money are its portfolio

A Real Estate fund will call its Real Estate investment as its portfolio. Various funds specialize in multiple RE asset classes like residential, commercial, infrastructure, and multiple other versions of it therein.

An Investment Bank or a Commercial Bank may have different asset classes, depending on its business model and clientele, calling an underlying asset as the portfolio. They can be Real Estate, Real Estate Classes, Cryptocurrencies, Commodities, and anything else that generates a return and is invested with an aim of either generating returns or appreciation in capital value.

Depending on the underlying asset, the portfolio management approach takes different paths

Portfolio Management for Private Equity and Venture Capital

When Portfolio Management is talked about for Private Equity or Venture Capital firms, it means helping the portfolio of companies, mostly private, in appreciating its valuation. This appreciation in value comes from improving revenue or cutting costs. The ultimate aim of investing in companies by Private Equity or Venture Capital firm is to exit at a valuation that is multiple times over the initial investment. A significant part of the fund is in the portfolio management business.

Multiple things could be done to make sure the portfolio company grows its revenue and keeps its costs in control

Outsourcing some of these services produce multiple benefits like reduction in operations’ cost, improvement in quality, etc.

Here are the services and all of it could be effectively outsourced in the portfolio management process to further net in the cost savings:

Portfolio Management-Companies

All the elements of companies’ portfolio management that could be outsourced

Business Research

Business Research touches multiple aspects of operations for a small company. It plays a vital role in Finance, Sales, Marketing, Strategy, and Procurement. Almost all research tasks in these functions could be outsourced. Investors taking in hands the research function take the nerve cells of the organization in control. From there, the company could be managed more closely and with better control. One of the most important aspects of business research is fine-tuning the business strategy. Investors can devise the expansion plans and study whether they are on track.

Marketing

Marketing and specifically the elements of Digital marketing could be outsourced well. Components of digital marketing like content marketing, web design, social media advertising, SEO, and everything else related could be outsourced and outsourced well. Marketing is the most important lever when it comes to growing the business of a small company aggressively. Topline growth increases the valuation of the company almost simultaneously.

Business Development

Specifically, for B2B businesses in the portfolio, there are multiple outsourceable elements for business development. This includes list and lead generation to onboard newer accounts faster. Also, account-based management is important for bigger clients of a smaller portfolio company.

Mergers and Acquisition

After the initial investment, the struggle for the investor takes another direction. It is to raise further rounds of fund-raising or start finding a bigger buyer for the company. Multiple activities are spanned out of this objective. For example, generating the list of potential buyers or investors and all the accompanying documents that go towards an M&A exercise.

Fund-Raising

Fund Raising is an ongoing cause for venture-funded companies. After the seed round, the preparations start for a further round of fund-raise like Series A, Series B, Series C, and so on. This leads to a continued quest for generating a pipeline of investors for further rounds of fund-raising. This activity of generating and populating pipeline could be effectively outsourced while the management focuses on revenue and profitability

Outsourced CFO

A full-time CFO is something that a small start-up may struggle to have. When a VC fund invests in multiple start-ups, it could have a centrally located CFO for all these companies. To further save costs, this CFO or parts of the CFO team could be outsourced. An outsourced CFO brings in the expertise of a tenured CFO along with the scalability of an outsourced team.

Product Design and Development

Many investments specifically in the VC space happens in the pre-product development stage or immediately after the proof of concept still leaving the product with some problems that need to be ironed out. This is when product design and development services come into play. It helps in setting up websites, making apps, and initial marketing to gain the users and change the UI or business strategy if required. It’s just that with outsourcing, these business and technical iterations become a lot cheaper.

Lead and List Generation

An ongoing company needs a list-building exercise all the time whether it’s about getting a new client or an investor or a vendor or anyone else for any other type of business collaboration.

 

Portfolio Management for Hedge Funds, Investment Banks and other Asset Managers

This section is for anyone else who is not dealing with investing in private companies. This is also for anyone who does not get into an active management role in a company’s day to day affairs. The underlying assets in this portfolio could range from Real Estate and all its classes like residential, commercial, land, buildings, infrastructure, etc., cryptocurrencies, public company stocks, commodities, and everything else that is bought, sold, or traded for capital appreciation or returns. Portfolio Management strategies, in this case, differ significantly from explained earlier and here different tools and models are used for Portfolio Management

Here are the aspects of such a portfolio management project that could be outsourced effectively

Portfolio Management- Funds

Activities that could be outsourced for Portfolio Management of funds and other assets

NAV Tracking

Almost all types of assets need regular NAV tracking. NAV which stands for Net Asset Value is the underlying value of the asset that changes from time to time.  All the changes need capturing for investor communication periodically. NAV of some assets is easy to capture, whereas with other assets it follows a difficult process. Portfolio Management and Investment Analysis are connected as the successful investing strategy need to be doubled down on. Several KPIs for Portfolio Management are tracked as well.

Investor Relations

Investors need to be reached out for all the information like the value of their holdings, taxes, fund management fees, waterfalls, etc. Sometimes they would also need a primer on the strategy of the fund or change in the plans by the fund manager. A Portfolio Management dashboard is often prepared and is automated for the information of investors

Middle Office

All the middle office activities like fund administration could be effectively outsourced. This form majority of research, and analytics jobs performed at a Fund. Automated tools for portfolio management is used here.

Back Office

All the tasks like book-keeping could be outsourced at a fraction of the cost. There are multiple software for portfolio management and book-keeping that could be used in the process

Marketing

Most marketing activities like CRM, Marketing communications, reports, and content could be outsourced as well.

Why outsource portfolio management?

Outsourcing has multiple benefits for a Portfolio Management Office. Cost-saving is an obvious one. Here are the factors that add to the charm of an outsourced deal:

Cost: Cost savings of 30-70% from outsourcing portfolio management is very typical. The cost that you save depend on the geography from where you want to outsource and the technical skills required to do the job effectively

Skill inventory: Many small fund management teams operate at a suboptimal level and are not able to meet the standards of bigger funds as their support services don’t match up with that of much bigger funds. Outsourcing presents an opportunity for smaller fund teams for skill enhancements. Outsourcing brings the skills to the team without permanent hiring

Quality: The work quality that is outsourced is of global standards and helps raise the bar for the internal team as well

Risk: Outsourcing reduces the portfolio management risk significantly

Flexibility: A Portfolio Management Analyst can either be hired full-time offshore or in parts or services can be availed on an hourly basis

Magistral has helped multiple fund managers in outsourcing portfolio management and other aspects of operations.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing CIO related activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

Introduction to Deal Origination Services

Making a deal is imperative for a Venture Capital or a Private Equity firm. That is the business they are in. However, behind every successful deal that attracts investment, there is a pipeline of multiple other deals that are curated over time. Deal origination services deal in populating and updating that deal pipeline.

Every fund has an investment philosophy or mandate to make deals that are relevant for its purpose of delivering outsized returns. Some specialize in early-stage investments like Seed or Series A while others prime for late-stage investments like M&A or Series D and beyond. Whatever is the fund mandate, it’s imperative for every private equity or venture capital fund to populate the deal pipeline, so that the deals that fit every criterion could be fructified as and when required. For Hedge funds and Fund of Funds, deal origination concerns about stocks and funds respectively. Deal Origination for Investment Banking also works on similar lines.

Scope of Deal Origination Services

Private Equity Deal origination or Venture Capital Deal Origination services understand in detail the fund philosophy or the mandate. It is then broken down into actionable categories for the selection of targets. For a typical early-stage VC fund, for example, would be interested in SaaS product companies, where the product development has been done and the company is looking for commercialization in the space where the fund may have connections to bring in the early clients. This breaks down into requirements in terms of the industry of the target, industry where target’s clients are, revenues, geographical presence, employees, team, and their background, and suitability to deal terms like management ready to give majority stake, etc.

Once the profile of an ideal deal is finalized, the search begins for the potential targets, where the deal could be fetched.

Population and Update of Deal Pipeline

The deal pipeline is continually updated for the right deals. Every new deal that is originated finds a place in the deal pipeline. This also works for M&A deal Origination. As not all the details about the private companies are available in the public domain, primary research along with secondary research is employed. Details of the deal origination process are explained below

Deal Origination Services

How A Deal Pipeline is Populated?

Here are the most common ways of populating the deals pipeline:

 

Secondary Research

Secondary Research is the backbone of finding suitable deals. The analyst looks for the private and sometimes public companies satisfying a given set of criteria like revenue, stage, team, geographical presence, etc. Information on all relevant parameters is collected to shortlist the right target

Primary Research

Once the target is shortlisted the analyst gets in touch with the company to collect other information and understand the intent of the company to raise funds. All the information collected is duly captured in the pipeline sheet or Deal Origination platform

Accelerators

Accelerators, Incubators, and other similar Associations provide a current set of targets that are looking to raise funds and have been primed to do so. Getting in touch with such organizations provides important inputs to the deals pipeline. Sometimes these organizations distribute information through regular newsletters which need to be studied to populate the pipeline for the appropriate targets

Platforms and Events

Some multiple platforms and events help startups in raising funds. These platforms are continually looking for investors to fund their member startups. The analyst usually takes the membership of these platforms to receive periodic information

Deal Databases

There are multiple deal databases along with private company financials. Each geography has a specialized database. Sometimes databases also specialize in a given industry. Deal terms on databases help in arriving at the company valuation which is useful in the deal execution stage

Introduction to Deal Execution Services

Once the pipeline is populated and the opportunity is shortlisted for deal-making, deal execution services come into play. Deal execution services help in preparing documents that go into deal-making and negotiations involved therein.

Activities in deal execution are Financial Modeling, Valuation, Due Diligence, Strategy, Business Development Support, and Deal Documentation

Deal Execution Services

All that forms Deal Execution Services

Financial Modeling

Financial modeling serves as a host of purposes. It analyzes if the proposed acquisition, buy-out, M&A, or investments makes sense financially. It also helps in fine-tuning the financial future of the proposed asset. Revenue, profitability, and costs are forecasted to finally arrive at a proposed valuation. The financial model also takes into account the cost of capital and analyzes various exit opportunities for investors. The financial model also suggests if the investment is viable and is going to provide the expected returns to the fund. The financial model analyzes various investment scenarios too, and how key investment parameters change in all those scenarios. Financial Models have been traditionally prepared on the excel sheets but increasingly there have been multiple software products to aid the modeling and reduce the analyst errors

 

Valuation

Valuation is one of the key metrics for the investment decision. It is calculated differently for different types of companies and their maturity. For public companies, the DCF Model along with comps from similar companies gives a comprehensive view. For private companies, it’s usually based on multiples prevailing in the industry. Valuations change in various business scenarios of optimistic, pessimistic, and realistic business outcomes

 

Due Diligence

Due Diligence makes sure that investment is right and will meet its objective in terms of expected returns from the asset. Due Diligence checks thoroughly the financials of the company. All the assumptions made to forecast the financial future are double-checked. Due diligence also checks for the track record of the team as professionals. All aspects of Corporate Governance are verified in detail. Legal battles, statutory or government actions on the company are looked at. Due diligence gets into details of finances, strategy, assumptions, marketing, people, team, and everything else that is important. For smaller assets, it could be done in a few weeks, whereas for strategic investment it can go on for months. A data room is set to comb through the huge amount of data and information.

 

Strategy Formulation for Portfolio Companies

In terms of Deal Execution either the strategy is prepared or already prepared strategy document is vetted. A strategy document is put to attract co-investors and set the expectations from the management. Strategy or plan for the next 5 to 10 years is prepared. The input from the strategy document goes into financial modeling and revenue forecasts. If Strategy is already in place, assumptions are rechecked to make sure the document is robust and achievable. Annual budgets are also derived from the strategy documents.

 

Business Development Support for Portfolio Companies

Immediately after the deal goes through, major thrust from investors is towards the business development of the invested company. Almost always there is an imminent need of finding out and reaching out to the customers. It is usually achieved through lead generation and meetings’ set up in B2B set-up and effective digital marketing in B2C set up. Business Development support services ensure the revenue and growth forecasts are met

 

Deal Documentation

There are a host of documents that are prepared for fund-raising. Requirements are even more in the case of public companies. Following are the documents that are usually prepared for fund-raising

PPM/CIM: Private Placement Memorandum or Confidential Information Memorandum is a detailed document covering all aspects of the proposed investment

-1 Pager: It’s a teaser document that is sent out for information of other investors

-Financial Model: As discussed earlier in the document, it analyzes the investment in all scenarios and the respective outcomes.

-Pitch Deck: A short version of CIM which is more of a marketing document

Several other forms are filled and prepared depending on the geography of the investor and investee.

Magistral Consulting has helped multiple investors like Private Equity, Venture Capital, and Family Offices in making the right investments through all the services mentioned above. To drop an inquiry please visit www.magistralconsulting.com/contact

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing CIO related activities. It has service offerings for Private Equity, Venture Capital, Family OfficesInvestment BanksAsset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE fundsCorporates and Portfolio companies. Its functional expertise is around Deal originationDeal Execution, Due Diligence, Financial ModelingPortfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

What are Outsourced Investment Officer (OCIO) Services?

An Outsourced Investment Officer services or OCIO provide support in terms of research and analytics for investment decisions by a company, Private Equity or Venture Capital Fund, Hedge Fund, Family Office, or an Investment Bank. Simply put, An Outsourced Chief Investment Officer fills in for a regular Chief Investment Officer as and when required. Mostly it comprises activities that support a CIO in performing his services effectively.

When is OCIO needed?

Outsourced Chief Investment Officer services are designed for funds like Private Equity, Venture Capital, and Hedge Funds, and for Family Offices, Investment Banks, and M&A functions of Corporates

Need of OCIO Services

When it makes sense to outsource Chief Investment Officer?

 

It’s not possible to hire a full-time CIO in all situations. In many business scenarios, there is a requirement of a team that supports the CIO. This size of the team changes as per the deal flow. Some of these situations are:

-The fund is small and cannot afford a full-time CIO

-The fund is still raising and cannot onboard a full-time CIO unless the fund reaches its target close

-A full-time CIO is there but there are way too many investment decisions that need analysis and hence the requirement of a trained investing team

-A Corporate house is looking for a specific opportunity of M&A and does not want to hire a full-time CIO for a few deals here and there

 

What are the advantages of an Outsourced Chief Investment Officer?

Outsourced Chief Investment Officer makes an absolute sense when looked at from the cost perspective.  When outsourced to a low-cost country, OCIO could produce a benefit of a 30-70% reduction in cost by either outsourcing the CIO or the team or some of the functions and projects. A specific function where the in-house team lacks the expertise could be outsourced as well. Here are the typical advantages of outsourced CIO:

30-70% reduction in the costs depending on the location from where the outsourcing takes place

A plug and play outsourced Chief Investment Officer model where a CIO comes into play when required. If there is only one deal that has to take place in a year, it makes sense to hire a CIO for only as many days as required. Outsourced CIO fits in perfectly for this requirement

A specific Skillset requirement: With complex investing scenarios and multiple complex options in investing, there are many niche skills that are required to make an investment decision. Outsourcing could be done for these niche skills whenever required

Team Augmentation: This is the most important advantage of outsourcing the CIO. It’s not about replacing or hiring an outside CIO, it’s about augmenting the team under the current CIO. It may so happen that business requires enhanced analyst capacity due to increased deal flow or a few special one-time projects. Outsourced Chief Investment Officer Services fill in perfectly here and augment the team as required

Activities under Outsourced CIO

The activities that come under OCIO are either the overall decision analytics or a particular subset of activities that lump under the investment decision making process. Here are the activities that form the major part of Outsourced CIO services:

Outsourced Chief Investment Officer Services

Activities provided under OCIO services

Investments

Research and Analytics services for investments are performed under this service. The investment could be done in companies, stocks, funds, or real estate. Almost all the subset of activities could be outsourced. Here are the typical examples of the projects

-Finding out the right price for a company stock

-Finding out the valuation of a private or a public company

-Doing due diligence of a fund or a company before investment

-Originating deals as per the investment objectives of the fund

-Maintaining and populating the deal pipeline for future deals

-Profiling potential companies or investing

-Profiling various Hedge funds for investing in case of Fund of Funds

-Other Strategy, Research, or Marketing tasks

Portfolio Management

Research and Analytics services that are required for the smooth functioning of portfolio companies come under this. For Hedge funds, it will be continuously evaluating long-short positions. Here are the typical projects that could be outsourced:

-Valuation of portfolio companies

-Research support for portfolio companies

-Marketing and Business development support for portfolio companies

-Evaluating long term long and short positions of a long-short equity hedge fund

-List generation for a portfolio company to sell its products

-Lead generation for further acquisition or finding a buyer of the company

-Market entry strategy for a new market or a new product

-Annual business plans

-Key accounts management for major clients of the portfolio companies

-New product development and related market research for portfolio companies

Operations

Under these services are the activities that enable the smooth functioning of a fund. This comprises Middle and Back office operations outsourcing. Some of the examples of the projects undertaken are:

-Fund administration services

-Annual and quarterly audits

-Tax preparations

-Investor portfolio accounting, subscriptions, and redemptions

-Fee waterfalls

-Middle office outsourcing

-Back office outsourcing

-Trade accounting

-Exception handling

-Cash and Trade reconciliation

Under this multiple software also could be used to make sure many of these activities are automated and processes efficiently

Outsourced Chief Investment Officer Model

 

The way an outsourced CIO model works is by hiring FTEs offshore. FTE stands for Full-Time Employees/Equivalents. These are the offshore-based analysts who support multiple tasks related to investment research and decision making. Apart from hiring full-time resources, there are options for buying analyst hours or outsourcing a specific project.

 

Magistral Consulting has helped multiple funds and companies in outsourcing CIO related activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

 

 

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About Magistral

Magistral is a leading research, analytics, and consulting services provider for Investment Banks, Private Equity, Venture Capital, Family Offices, and Hedge Funds. It has more than 100 clients across the globe. If you need any of Magistral’s work samples or need to talk to any of its existing clients and referenced drop a line at www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

Introduction to Hedge Fund Outsourcing

Operations Outsourcing for Hedge Funds is slowly becoming a viable proposition to improve analytical excellence and reduce the operations’ cost. Almost all types of hedge funds can benefit from outsourcing and research support services. It aids the smooth functioning of Hedge Fund operations. Hedge Fund outsourcing not only helps in reducing operations cost, but it is also immensely helpful in raising the analytical standards of the fund.

 

Hedge Funds are investment vehicles that invest in stocks to give superlative returns to their investors. They follow multiple strategies like long-short equity, market neutral, merger arbitrage, convertible arbitrage, event-driven, credit, fixed income arbitrage, global macro, Short only, and Quantitative. Here is what these strategies are and what could be outsourced by each strategy

Long-Short Equity Hedge Fund

This is by far the most common form of Hedge Funds. Here the fund manager takes long and short positions on the stocks where he believes the stock will go up and the stock will go down respectively. Ideally, long positions should match short positions, so that risk from overall market movements is hedged. However, in practice, the ratio of long and short positions varies with every fund manager. Generally, there are more long positions than short ones. Taking long positions on expected winners acts as collateral to short positions in the expected losers

Long-short Equity is an extension of pairs trading, where a fund manager takes opposing positions in similar stocks in the same industry. If a stock looks overvalued as compared to another in the same industry, the fund manager goes short on the overvalued stock and long on the undervalued one. This relative positioning hedges the risks of market fluctuations in either direction

Hedge Fund outsourcing in long-short equity funds have reduced operations cost by 40-70% and at the same time is known to bring the new skills to the fold of the fund.

What could be Outsourced

Here is what could be outsourced conveniently in a Long-Short Equity Hedge Fund

-Equity Research

-Middle Office

-Fund Administration and Accounting

-Data Management (Collection, Cleansing, Automating and Templatizing for Insights)

-Industry Research

 

Market Neutral Hedge Funds

Market neutral hedge funds are long-short equity funds that hedge the value of long and short positions. The value and volume of long positions match the value and volume of short positions. This ensures that the risks of market movement are minimized. That also means that the returns from such hedge funds are far moderated than the funds that are biased towards long positions. As its type of a long-short equity fund, outsourcing carries similar potential.

Here is what could be outsourced conveniently in a Market Neutral Hedge Fund

-Equity Research

-Middle Office

-Fund Administration and Accounting

-Data Management (Collection, Cleansing, Automating and Templatizing for Insights)

-Industry Research

 

Merger Arbitrage Hedge Funds

This is a unique kind of event-driven hedge funds that play on a merger event. Whenever a merger event is announced, the fund manager buys the shares in the target company and shorts the shares of the acquiring company in the prescribed share swap ratio. It creates a spread that incentivizes the fund if the merger goes through. This is however a risky proposition and fund loses in case the merger does not go through due to any regulatory or internal reasons

Apart from usual activities, here is what could be outsourced:

-News tracking related to M&A

-Merger Modeling

-Valuations

-Industry Reports

 

Convertible Arbitrage Hedge Funds

Convertible Arbitrage is securities that combine bonds and equity. Fund Managers are usually long on bonds and short on the equity that they convert to. Fund managers maintain a delta neutral position throughout. So if the equity value goes down, they need to buy more equity and hedge more if the stock price goes up. It forces fund managers to buy low and sell high. These funds return superior performance if there is volatility in the market.

There are multiple facets of operations that could be outsourced here

Event-Driven and Credit Hedge Funds

This is another unique type of hedge fund that thrives on special situations like bankruptcy. These funds focus on acquiring senior debt that gets paid over other kinds of debts in case of bankruptcy. Credit Hedge Fund on the other hand looks for arbitrage between senior and junior debt from the same issuer. They also trade between securities of different qualities from different issuers

Apart from regular operational aspects, here is what could be outsourced here

-Research around the events that allow the opportunity to kick in for the Hedge Fund

 

Fixed Income Arbitrage Hedge Funds

These Hedge Funds buy securities on one market and sell them on another market and make money from the arbitrage existing between the two market prices of the securities

 

Global Macro based Hedge Funds

Some Hedge Fund focus on macro trends around countries, markets, commodities, trades, etc. to bet on different investment and trade from opportunities that these macro changes may throw-in

Global macro changes research could be outsourced here

Short Only Hedge Funds

These Hedge Funds bet on the failure of a company. They look for companies that may have unsustainable business models and go short on them. It’s the short part of the Long-Short Equity Hedge Fund.

All the elements of the Long-Short Hedge Fund could be outsourced.

 

Quantitative Hedge Funds

Quant based Hedge Funds solely depend on mathematical models to make buy or sell decisions. Their algorithms are obscure and they use tools like Machine Learning, Artificial Intelligence, High-Frequency Trading, and other technological tools to produce returns.

All regular activities related to Hedge Funds like Administration could be outsourced here.

 

Here are the activities that Hedge Funds commonly outsource:

Hedge Fund Outsourcing Activities

Activities that are commonly outsourced by Hedge Funds

Equity Research Outsourcing/ Hedge Fund Outsourcing

Equity Research Outsourcing is by far the most important element of Hedge Fund Outsourcing. Equity Research outsourcing helps the in-house team track more stocks and sometimes to give more depth to the same set of stocks that are tracked by the fund. Fundamental and technical equity research, both could be outsourced effectively.  DCF models are prepared for each stock and then tracked progressively for any changes or news related to that particular stock. Earnings call transcripts are duly recorded and analyzed for a recommendation. A short 2-3-page report is prepared for every stock with the overall recommendation and the rationale for the recommendations. Hedge Fund Research tasks are completed seamlessly with the offshore team acting as a natural extension to the in-house team

 

Markets/Industry Research

If an investment theme is weaved around a specific country, industry or an emerging theme, its imperative to track that industry, market, or theme closely and regularly. A market is tracked for any macro-level changes like new tech, change in regulations, key movements, trends, etc periodically say quarterly. Several indices are also tracked regarding this. It’s quite common to track 14 S&P industries or some of its components therein. For index hedge funds, the performance of various indices is tracked

Typical examples may be tracking the insurance market in North Africa or metals and mining in South America. If your fund has a bigger interest in stocks that are based in those markets, it makes sense to have the key metrics of these industries reported to you regularly

Manager Research

This is important for Fund of Funds. As part of their investment strategy, they are continuously on a look-out for hedge funds that fulfill a given set of criteria like vintage, past returns, investment themes, etc. Each fund is analyzed for risk-adjusted returns over a fairly long period like 10 years or so to find out the most suitable funds.

This requires getting in touch with multiple funds across the globe, collecting information, analyzing it, and then presenting holistic recommendations on where the fund stands. All of this could be outsourced.

 

Bond and Other Fixed Income Instruments Research

For hedge funds that operate on the lines of fixed income, the research is done that is related to sovereign and government bonds, corporate bonds, fixed income instruments, and several other investment options like that

 

Fund Administration and Accounting

Fund Administration is outsourced for activities related to accounting, bookkeeping, and general administration of the funds. This also forms part of Hedge Fund Middle Office Outsourcing. Some bookkeeping aspects also come under Hedge Funds’ back-office outsourcing. It keeps the documentation trail of all the trades, makes sure all operational processes are followed and exceptions are duly approved. Hedge Fund books are maintained in the prescribed format. It also takes care of investor communications like portfolio allocations, portfolio valuation, capital calls, taxes, profits, fees, NAV, portfolio, etc. Customized Hedge Fund newsletters for investors is sometimes prepared and sent separately to current and potential investors

 

Investor Relations

This is a subset of the Fund Administration process. However, some elements of organic investors’ reach out could be outsourced as well. A tool or a portal for all the investors with all relevant information for them is prepared for seamless and updated communication. This is communication related to the Hedge Fund investments made by the investors. This might be customized to carry Hedge Fund news, Strategy, Returns, and Performance. In the case of Fund of Funds, the performance of all the underlying funds is covered.

 

About Magistral

Magistral has helped multiple hedge funds in outsourcing operations. You can check www.magistralconsulting.com for more details

 

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for queries on this article or business inquiries in general

 

Introduction

Family offices are the biggest chunk of Limited Partners. They are the chief source of financing for multiple Private Equity, Venture Capital, and Real Estate funds apart from other Limited Partners like Insurance Companies, Sovereign Funds, Pension Funds, etc. The trend of Family Office outsourcing their operations’ activities is fast catching up.

 

Family Offices are now opening to the concept of direct investing and its time for them to be open about the concept of outsourcing too like their General Partners investees

Family Offices and Direct Investments

Private Equity as a new asset class was coming up well and operated under the rules of incentives like 2/20. Simply put it means there would be 2% of management fees of the AUM and 20% would be charged from the profits. Under these arrangements, there was a limited risk for General Partners for the lower than expected returns but had a significant incentive if returns turned out to be positive. This also incentivizes parking money quickly, without proper due diligence as it increases the AUM.

After a cycle of investments, it was evident that the biggest players were investing in hoards in the same assets. Many times it was as simple as investing in companies that everyone else was also investing in. Not only there is an upward risk of diminishing returns, it did not require a huge exercise in due diligence.

Family Offices decided to take away the fun, by just investing in these companies directly rather than parting fixed and variable incentives by involving in a General Partner. With direct investments, Limited Partners still carry the same risk and rewards for the investments but significantly cut the costs of management fees by General Partners. Now Family Offices are increasingly looking to enter into the next wave of investments themselves like evaluating smaller companies.  These evaluations so far have been simpler and formulaic, like a given revenue and profitability in specific industries and they will invest. But it’s just a matter of time that Limited Partners acquire experience and expertise in making these decisions and go for the complex deal-making themselves.

Family Office Outsourcing: How Outsourcing aids, the trend of direct investments by family offices

Outsourcing provides analysts on-demand to take care of activities like finding a deal, providing documentation for that, and supporting manager search and finalization. This works better than getting in touch with multiple private placement players, who may have limited options for investment opportunities that emerge from their personal or professional networks only. Outsourcing helps in organically reaching all the targets and managers that qualify for an investment thesis.

Operations’ activities that could be outsourced by Family Offices

Family Office Operations' Activities that could be outsourced

Family Office Operations Outsourcing Potential

Almost all the operational aspects of fund management could be successfully outsourced by family offices bringing down the operations cost significantly. It also improves the flexibility related to the investment analysis process. Here are the major activities that a player like Magistral can help a family office outsource:

Direct Investments

Family offices are moving towards direct investments more confidently than ever before. Though it’s still limited to general rules of investing and in industries where the comfort of family office lies.  It’s quite common for family offices to be looking for revenue beyond a given threshold, profitable operations, and some years of existence in business. The way Family Offices make these investments are majorly dependent on independent brokers or private placement players bringing in the deal.  They will broadcast their requirements and then get in touch with all brokers who could bring in the deal, mostly on variable broker fees arrangement.

A better way of working would be to proactively reach out to the universe in search of the target company. Outsourcing helps here as it could be done at a fraction of the cost that is payable to a broker on a successful deal. It also ensures that a substantial portion of the target universe has been approached, rather than relying on the breadth of a professional and personal network of brokers and private placement players. Players like Magistral offer services of Deal Sourcing that is immensely useful in this situation and brings the business impact at fraction of the cost

Apart from finding out the direct investment targets, Magistral also provides documentation and deal support for the deals. SEC-compliant documents like pitch decks, Confidential Information Memorandum, Financial Model, Valuation, etc. are produced for a deal to get investment approval or finding co-investors.

Manager Research and Due Diligence

For the areas where the family office does not have the expertise, looking for Fund Managers is still the preferred way of investing. Once the investment thesis has been identified, the major chunk of work involves reaching out to the Fund Managers who satisfy the given criteria. Manager Search can be done in the professional network or again through a private placement player or a database, but none of the methods ensure the reach-out to the almost complete universe. Outsourcing helps in reaching out to all the suitors and that too at fraction of the cost. Reaching out to all the suitors ensures that deal is done with the best fund manager out there and that too after negotiating the best arrangement for fixed fees and incentives.

A typical process here requires understanding the requirement of the family office and its investment strategy. It is then proceeded with an exercise of list generation of all the managers who satisfy criteria in terms of AUM, Geographical Focus, Returns Generated in the past, Quality of Management, etc. Once the shortlist of Fund Managers is drawn, a reach out to undertaken to these managers collecting all the fund related documents for an exhaustive due diligence exercise. Documents and data are then analyzed by an experienced analyst to provide an objective opinion on where the Fund Manager stands. Magistral uses a proprietary tool that carries a weighted average of multiple parameters related to Fund performance to recommend a fund that carries the minimum risk for higher returns.

Magistral has analyzed Funds like Hedge Funds, Real Estate, Private Equity, and Venture Capital in the past. A recent analysis of multiple Hedge Funds across the Middle East and China, by Magistral team, led to an investment of $300 million for a client.

Emerging Investment Opportunities

Investment opportunities have grown in numbers apart from each opportunity growing in terms of complexity. For coming up with an investment thesis that ensures consistent high returns, it’s imperative to scan the universe continuously. Today, a host of family offices evaluate multiple industries and investment opportunities to make the strategy for investments.  Tracking multiple types of Real Estate, Hedge Funds, Crypto Assets, Sovereign Bonds, Equity, and several other types of investments require analyst capacity. Outsourcing provides that capacity so that there is no opportunity that quickly picks up and misses the attention of the Family Office Manager.

Currently, Magistral tracks all global S&P industries for its clients and provide them with quarterly reports apart from their other areas of interest. We also continuously update the returns potential of each tracked industry and investment opportunity.

Finding Co-investors for an Opportunity

As a Family Office, you have found an opportunity that you are sure will generate superlative returns over a period of time, but it requires a minimum ticket size of say $ 25 million to enter. A stake into VC funds like Softbank of Carlyle might require that kind of a sum to invest. It means a Family office will need to reach out to similar investors to pool the money to enter the investment vehicle.

An outsourcing player like Magistral can facilitate the conversation by reaching out to the right co-investors

Risks involved with Family Office Outsourcing Operations

Family Office Operations' Outsourcing Risks

Family Office Operations Outsourcing Risks and Solutions

Even General Partners like Real Estate, Private Equity, and Venture Capital are still warming to the idea of outsourcing which is typically considered low cost and also low quality. Family Offices will require even more time to get comfortable with the idea. The prime reason for Family Offices not outsourcing is not the lack of quality or that outsourcing does not make business sense. It is the fear of the unknown. They have never tried it and they don’t know what it might bring. Well, it might bring sizeable business benefits. For Family Offices to get over their fear of the unknown, Magistral offers a small pilot of all its services at minimal costs before a larger engagement is discussed. It ensures there are no performance-related risks in operations outsourcing deals. If you are a Family Office and are interested in exploring the idea, please drop an inquiry at here

Apart from a general fear of the unknown, several other reasons stop a Family Office from outsourcing. These are:

Data Security

A Family Office fears that details of a deal might leak outside. This fear stems from a lack of understanding as to how a family office service provider works. An outsourced service provider like Magistral takes all the care related to confidentiality. The work happens in a watertight environment digitally by analysts. No information can leave the systems unless otherwise approved. These cloud-based security tools are quite sophisticated.  Apart from this, a workplace that is physically secured is also arranged on the clients’ request. Also, it all becomes safer when understood that an analyst is working only with one client at a time and thus has no incentive to leak any information

Costs

An outsourcing arrangement not only improves the quality and flexibility of operations but also brings with it significant savings in terms of costs. Potentially a 30-70% reduction in cost is a very reasonable expectation.

Quality

Family Offices typically have small teams and thus may not be very comfortable with all the investment avenues available. Outsourcing can provide reinforcements to the existing team in terms of expertise and more hands. Also, investment insights generally lead to better investments and more returns.

Language

All analysts usually have native fluency in English which is good enough to interact with most of the commercial world. If required language expertise can be provided for Spanish, German and Chinese for both spoken and written assignments

Expertise

Expertise is available in specific areas related to fund-raising, fund-strategy, Financial Modeling, Due Diligence, Research, Strategy, Marketing, IT and Portfolio Management is available on demand. The team can be put together quickly as per the needs of a deal and then dismantled once the deal is finalized

About Magistral

Magistral Consulting is a specialized outsourcing player that has helped multiple family offices and limited partners in outsourcing research and operations. For more information check www.magistralconsulting.com

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at prabhash.choudhary@magistralconsulting.com for any queries on the article or any business inquiry

 

Introduction to Fund Raising Process

Our firm Magistral Consulting has helped in raising funds for more than a hundred companies, start-ups, Private Equity, Venture Capital, and Real Estate funds in the past. We have done it for firms based out of the US, UK, Europe, and Australia. In the process of doing so, we have acquired immense knowledge about the process of fund-raising.

This article will focus on the process that we follow for Start-ups and established companies looking to raise funds primarily through selling equity. Options of debt financing are also explored during the fund-raising negotiations with investors. Although each firm’s situation is unique, here are the common steps that all firms follow in their journey of fund-raising. We undertake this process end-to-end for the firms looking to raise money

Steps to Raise Funds for Startups and Other Firms

Fund Raising for Start-ups and Companies

Fund Raising Process for Start-ups and Other Firms

Step 1: Deal Documentation for Fund Raising

Before the fund-raising process could kick-off, all deal documents need to be prepared. There are three documents that we find an absolute must for a smooth process. Confidential Investment Memo could be made closer to the fundraising process. These documents are:

Teaser Document: It is also known as 1 pager. It’s a brief introduction about the opportunity and usually the first document that is sent across to the investors. For a firm, it will carry an introduction to its products or services, past financial performance, future projections of revenue and profitability, returns that an investor could make in a 3 to 5-year period, and some information on the founding team. It’s ideal to have this information presented in a concise manner with almost overuse of infographics to convey the message. In no case, this document goes over 1 page in length

Pitch Deck: This document is sent after the teaser document if the investor shows interest in the opportunity. This is typically a 5 to 10 pager document carrying all the details about the firm. The details are on similar lines as in the teaser document but more detailed. Major sections include, about the firm, about business, competition, business model, financials, valuations, plans, strategy, team, usage of funds, patents, etc. not necessarily in that order.

Financial Model: Models also vary in terms of details that they capture. A start-up with just an idea can have a very basic valuation model, whereas a firm with multiple lines of established businesses may have a detailed model running into multiple sheets. The purpose of the model is to value the company and show returns to investors which are adjusted for the risk. This is the document usually required in fundraising negotiations.

Investment Memorandum: This is prepared closer to the fund-raising process. While pitch deck maybe a Marketing document, Investment Memo can be seen more as a factual document that highlights the risks clearly in the investment. This may have legal, compliance, and regulatory consequences.

The documents are customized a great deal depending on the nature of the deal like raising a seed round, Series A, Series B, Series C or further growth capital

Once all the documents are in ship-shape and all stakeholders buy into the content in these documents, it is decided to proceed with investors’ reach out.

Step 2: Target and List Generation

This step could take place in parallel with Step 1.  It is about finding the investors who may be interested in the investment opportunity that the firm presents.

Here are the ways to find out the investment firms that may be interested in the opportunity:

Funds required: For smaller fund sizes say lower than $ 5 million, a Venture Capital firm or smaller Private Equity firms will be more suitable. For larger amounts, Private Equity or Family Offices will be more appropriate

Competitive Intelligence: These are the firms that invested in a similar opportunity with the competition. For example, if you are an app that supplies drivers on-demand, which are the investors, that invested in similar apps in the recent past. The way to find that out is either through industry databases or through extensive research in news and events portals

Industry Specialization: These are the firms that specialize in the given space. If the firm is in SaaS space, it makes sense to look for investors who socializes in SaaS and has made investments in the industry

Geographical Specialization: These are the firms that specialize in investing in a specific country or region. There are global investors as well.

ESG and other considerations: Some investors specifically look for sustainable investments like Green technology etc. Other specializations are around companies founded by say women or other minorities and disadvantaged groups. Impact investing is another important category under which a company could fall.

Once the firms are identified, we proceed with the identification of individuals within those firms, who may be in a decision-making capacity to invest in your firm

The information required here is the name of the individual in each firm, their profile, email IDs, phone numbers, and office address.

Step 3: Reach-out and Meetings Set-up

A reach out is performed by mailing to all suitable investors. The email is suitably customized to the needs of each investor and conveys the salient features of the deal. Reach-out over the phone is done for investors, which is very relevant. After the initial communique, a reasonable number of follow-ups are done to make sure there are no stone unturned

On every 100 firms’ reach-out, it is expected to have 5 good quality meetings related to fund-raise. Meetings are coordinated between investors and the entrepreneur.

Step 4: Negotiations

Negotiations go in all sorts of complications on valuations. Here the Financial Model is tested out with all its assumptions. Finally, if everything is fine, a term sheet is issued by the investor. Term sheets need to be studied closely for all sorts of caveats, liabilities, and terms

Why it makes sense to Outsource the Fund-Raising Support?

Running and growing a company in itself is a challenging job. Making all arrangements to raise funds on top of that is cumbersome and takes the focus of the entrepreneur off growing his enterprise. The whole process of fund-raising could be really confusing for a first-timer. It may take a long time for someone to learn the process on his own. It might take anywhere between a couple of months to a year for a company to raise funds depending on its specific situation. This job requires specialization, network, and focus. An outsourcing firm like Magistral provides that and still gives the control back to you at the most crucial stage of fundraising like negotiations.

Our pricing

Our pricing is a mix of upfront retainer fees plus a success-fee that is a percentage of the overall fund raised due to our efforts. This is paid out to us as a consulting or a finder fee. Here Magistral is not a dealer broker and needs no license to operate in international markets. For certain situations where broker-dealer licenses or any other similar licenses are required in any geography, we have pacts with our representatives in the US, UK, and Australia.

 

There is a huge discussion on the upfront retainer fee for our services with prospective clients. The firms suggest all fees be variable and absolutely no upfront retainer. One discussion I remember where a person suggested that everyone asking for upfront fees for fund-raising is a scam. These are the same people who are paying upfront fees to their lawyers, accountants, and everyone else for their services. If they think it is not a good idea to spend even a few thousand dollars behind their venture to raise funds, why on earth will we spend our efforts behind his fund-raising efforts. It talks to us loud and clear. They are not confident about their venture and may not have resources to even survive for the period that goes into raising funds. As you see, in earlier steps, we spend a considerable effort towards fund-raising, we would not do it for anyone who is just playing around and does not mind giving a higher share of success fees at the expense of the future investors. At some level, this whole exercise needs to be seen as the effort and related pay. That is where an upfront retainer comes into play.

Negotiations are complicated. What if an investor quashes your valuations and proposes something that cuts your valuation to half? Will you take the deal? If not, how is it our fault in facilitating the deal? It’s not fair to expect from us to keep coming up with a pipeline of meetings that are suitable to all your requirements, just because our payments are tied up with the raising funds. That is another case for having some portion of payment tied to the effort and not all of it to the success. If you think your start-up has funds to hire a specialist who will look into fund-raising support full time, drop an inquiry here

Typical Results

Reaching out to 100 investors should yield a small round of financing for a business that has some sort of presence on the ground and has made some money in the past. Things get difficult for mere ideas a bit if they don’t come from someone who has not founded or run any company before. If reaching out to 1000 investors does not yield any meaningful conversations, it is possibly the end of the road for the firm looking to raise money. Growth capital in the form of Series B and beyond see a warmer response than a seed round. One should take into consideration a period of at least a couple of months on the lower side to a year on the higher side for closing the next round. If you are a venture-backed start-up it makes sense to keep working on populating the pipeline all the time for the next round.

Fund-Raising for Private Equity, Venture Capital and Real Estate Funds

Although the process of fund-raising for General Partners follows the same process, the people looking to raise funds here are more sophisticated. Also, larger amounts of fund-raise are involved here. The United States requires a broker-dealer license to arrange funds on a brokerage fee basis. We deal with funds looking to raise money by helping them reach-out to Limited Partners, purely on fixed cost and fixed effort basis. Our ideal client is one who is looking to hire an analyst for reaching out to Limited Partners and not the one who is looking to hire a Private Placement player. If that makes sense to you please drop an inquiry here

If you are in any stage of your fund-raising journey and are looking for some direction, we can get in touch for a free consulting session, drop an inquiry with all details at www.magistralconsulting.com/contact

About Magistral

Magistral is an outsourcing firm that has helped multiple start-ups and companies in raising funds. It has also helped multiple General Partners like Private Equity, Venture Capital, and Real Estate funds in raising money. For more details please visit www.magistralconsulting.com

About the Author

The author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries of business inquiries.

Activities under Back and Middle Offices and their Potential for Outsourcing

Back Office Outsourcing has been around for over a decade and picked up the pace since the financial meltdown of 2008. Middle Office Outsourcing is something that is picking up now and is expected to gather pace after the Corona pandemic. So, what is Back and Middle Office outsourcing, and does it make sense for financial services firms like Investment Banks, Private Equity, Venture Capital, and Hedge Fund firms to outsource these activities?

 

What is a Back Office?

There are not many definitions that clearly demarcate back-office activities from middle-office. A front office at an Investment Bank or a Private Equity firm is the one that interacts with the clients. It comprises people who are in touch with the market like traders, deal makers, Investor relations, and rainmakers. On similar lines, back-office functions are ones that never interact with clients, like fund administration, accounting, record keeping, etc. Back Office has now long been designated as the right candidate for outsourcing to reduce operational costs.

What is Middle Office?

Middle Office are the functions that coordinate between the front and back office. Similar functions in similar financial institutions can often be categorized as Middle Office, back office, or even Front Office. So, there are lots of blurry lines between Middle and Back Office definitions. Also, an activity that will form a Back Office activity at an investment bank can be categorized as a Middle Office activity at a Hedge Fund. Technology is now getting all the more important than it was ever before. Biggest of Investment Banks now have more than 30% of their employees working in technology-related functions. Technology and Risk Management functions are commonly being categorized as Middle Office functions across financial institutions like Investment Banks, Hedge Funds, Private Equity, and Venture Capital firms.

Potential of Back Office Outsourcing

Back Office needs to be outsourced is a forgone conclusion. It was probably a matter of discussion a decade back. Almost all big Investment Banks have outsourced their back office. Private Equity, Venture Capital and Hedge Funds are playing catch-up when it comes to back-office outsourcing. The reason for them lagging behind is that their teams are comparatively smaller to start with, which leads to limited cost advantages of outsourcing for them. Hedge funds have rather taken the technology way to reduce costs with developments like AI, ML, and Automation. Traders on most trading floors have been replaced by robots now. The conclusion here is that if your firm has a well-demarcated back office, it needs to be outsourced, big, or small. As the industry has started to rely on back-office outsourcing defacto, it will be difficult to compete in the market for those who decide to keep it in-house.

Potential of Middle Office Outsourcing

Middle Office Outsourcing is a hot topic now. It is gaining ground with investment banks who were pioneers even in the back office outsourcing space. Increased capabilities of vendors, further pressure to reduce costs and improve bottom-lines, and competitive pressures are the major trends that are aiding the phenomenon. It’s not right to suggest that all functions of the Middle Office could be outsourced right away. It depends on the processes, culture, and cost structure of the financial institution in question.  In conclusion, Middle Office Outsourcing is something that is still taking shape. Though a lot of it could be outsourced, the moot subject is what and how much.

Outsourcing for smaller firms

If an Investment Bank, Private Equity firm, Hedge Fund or a venture capital firm is around 20 people or less, they are continuously caught up in the dilemma to outsource or not. A big firm with hundreds and hundreds of traders would save millions of dollars by outsourcing, the same could not be said about the smaller firms. Smaller firms operate in a niche and fear losing the competitive edge if they go for outsourcing. The low-quality perception of outsourcing does not help give them confidence either. It was so far so good. Some smaller players did survive the last financial meltdown on the back of their superlative services and the network of loyal clients. It’s debatable if they will survive the current pandemic too. In the changed scenario, it is almost imperative for a smaller firm to outsource both the back office and middle office if they need a worthwhile shot at survival. When we talk about the back office and middle office of a smaller financial services firm, it’s pretty much all of their analyst capacities. Thousands of one-man shops are thriving on the formula of outsourcing when the deal is there and conserving the cash when it is not.

Middle Office and Back Office Outsourcing Trends

Multiple trends are evident in the market. Some of the prominent ones are:

Back Offices at bigger financial institutions have been outsourced. A mode could be different in a way having owned captives in a low-cost country or giving a big contract to a leading vendor, but the fact remains, that the physical location of the back office now is a low-cost country.

Middle Office Outsourcing is in a transitional phase: A middle office is being planned to be outsourced. Some players have outsourced the junior positions with mid-level and senior positions in-house. Some are toying with outsourcing the simpler functions over the complex ones

Outsourcing is catching up with Private Equity, Venture Capital and Hedge Funds: Investment Banks definitely took a lead in outsourcing but now even typically smaller financial institutions like Private Equity, Venture Capital, Family Office, Hedge Funds, Real Estate, and Asset Management firms have also started to experiment with varying degrees of exposure to outsourcing

It’s not only about costs: Outsourcing has come a long way from being a lever of only saving costs. Vendors have developed advanced skills and now are in a better position to enhance the skill of the in-house team. It is possible because the vendor is working across geographies, financial institutions, and investment philosophies. A vendor can now bring a fresh eyes’ perspective to the operations and help the financial institution up its game

Pandemic will relay the rules: If outsourcing was just an option before the pandemic, it may not be so afterward. Financial institutions are expected to face cost-related headwinds that will force them to outsource to survive

Increasingly complicated assignments being outsourced: Assignments like Financial Modeling, Investment Research, Outsourced CFO, Fund Administration Process, Hedge Fund Analytics, Pitch Decks, Portfolio Management, etc. are increasingly being outsourced by Investment Banks, Private Equity, Venture Capital and Hedge Fund firms.

Overall back office and middle office outsourcing are at different stages of maturity across the financial institutions. While large investment banks are pared to the bone when it comes to taking advantage of outsourcing, the mid-sized and smaller investment banks have only started recently experimenting with the trend. While Investment Banks, in general, are more mature and warm towards outsourcing, firms like Private Equity, Venture Capital, Hedge Funds, Family Offices, Real Estate, and Asset Management are now opening more and more to the idea. What large institutions identified as a tool to maintain their profit margins, smaller institutions are finding that tool to be the key to survival and profitable growth.

Service Offerings of Magistral Consulting

Here are the service offerings that Magistral provides:

-Daily/Weekly/Monthly Review of NAVs

-Reconciling Cash Trades and Portfolios

-Monitor Trades and Corporate Actions

-Maintain Investment Book of Records

-Independently price the portfolio

-Performing Investor Allocations

-Reporting Profit and Loss

-Client reporting for funds

-Reviewing and preparing all financial statements

-Managing relationships with service providers

-Providing tools to monitor systems and processes

Magistral Consulting (www.magistralconsulting.com) is a premier outsourcing firm that has helped multiple firms like Investment Banks, Private Equity, Venture Capital, Hedge Funds, Asset Managers, Real Estate, and Family Offices in outsourcing their back and middle office. To schedule a free discussion without any commitment, drop a line at   https://magistralconsulting.com/contact/

 

The Author Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries on the article of business inquiries in general

 

The Complexities Involved in Preparing Financial Models and Why it Makes Sense to Outsource it!!

Financial Modeling Outsourcing is fast catching up, This article focuses on the steps required to prepare a Financial Model that will attract the attention of investors. It also argues as to why it is all the more important to outsource financial modeling to bring in an expert’s point of view.

Financial Modeling Definition

Financial Modeling is an inseparable part of Investment Analysis. A financial model prepared on an excel sheet is used to analyze almost all investment decisions.

Financial Modeling is considered to be a quantitative exercise plainly dealing with numbers and formulas. Sometimes on excel and sometimes on software like R, VB, Python, etc. However, regular practitioners understand that this is more of an art than science. It doesn’t only need to be correct in terms of formulas and assumptions, it needs to sell as well to the client.

In the article we will also talk about Financial Modeling Outsourcing, that is fast catching up as a trend to ensure the quality of the Financial Model

Types of Financial Models

The investment community uses multiple types of Financial Models. Following are the broad types of Financial Model:

Financial Model for Private Companies: Private Equity, Venture Capital, and Investment Banking firms use this to find out the valuation of an asset. Financial Modeling and Valuations go hand-in-hand. Investment Banks also do it day in and day out for their clients. It’s for situations where a private company, a start-up, or otherwise is looking to raise funds from debt or equity or is looking for the opportunities of Mergers and Acquisition. This type of financial model has all the sections that are important for investing like P&L, Balance Sheet, Cash-flows, Working Capital, Cap Table, RoI calculations, exchange rates, Resource utilization metrics, and other relevant details.

The way assumptions are made for the future forecast of revenue is the heart of the financial model. All other numbers just follow these broad numbers. If assumptions on revenue and cost are wrong, a financial model can either give undervalued or lofty valuations, both of which have the potential to kill the deal, either from the buy or sell side.

Financial Model for Stocks: Investors in equity stocks, usually Hedge Funds or Investment Banks use these models for themselves or their clients. They arrive at buy, sell, or hold recommendations based on these financial models. A Discounted Cash Flow Model of the publicly listed stocks is at the heart of each recommendation. It has future financial projections built-in and is updated continuously based on the developments related to that company or industry. Formulas on the model are the same and still, different brokerages come to different recommendations for the same stock. Ever wondered why? It is all in the assumptions and assessment of development. A development or news can be seen as highly negative by a brokerage and hence a huge negative impact on future projections, whereas the same news could be assessed neutral by another broking house.

The key to a great financial model in this situation is to understand the culture of your client/investor. Are they conservative or high-risk takers? Depending on the culture, you can make appropriate assumptions and hence the recommendations that suit your clients. Comparables and peer analysis is also used along with the DCF modeling

M&A Models: Most M&A models build further on financial models for start-ups and companies. It carries specific sections around financing and payback, synergies, Leveraged Buyout details to assess if the proposed M&A is going to create value for everyone involved. The most commonly used models here are Merger Modeling and Precedent Transaction Analysis.  Again assumptions are more important than the Formulas, as that can make or break the deal.

Other Models: A financial model is present usually before any sort of investment or fund-raising decision regarding any form of asset, whether we are talking about Real Estate, REITs, or a portfolio of crypto assets. Financial Model for Real Estate is in principle same as a Private Equity investment in a company but takes into account situations related to the concerning Real Estate.

Real Estate can be acquired and used differently, leading to different financial outcomes. A Real Estate financial model objectively analyses these scenarios and their financial outcomes. Say a land bank bought in the city center of a megacity could be kept vacant for capital appreciation. It could also be developed as an old-age hostel or a hotel. The second scenario will lead to rental income but at the same time will also require capital investments.

All this needs to be evaluated objectively to conclude if the proposed investment makes sense for the investors. Similar models are made to track the performance of REITs, or rent rolls coming from multiple commercial properties. There are multiple ways a Real Estate could give returns and all this leads to a hugely customized financial model specific to the situation. Real Estate Financial Modeling Outsourcing is catching up in a big way.

Steps to prepare a Financial Model- Financial Modeling Best Practices

The steps would change as per the financial model under preparation. Following are the generalized steps that are valid for usually all types of Financial Models:

Understanding the business and business situation:  This is the very first step before putting in a single number in Excel, R, Python, VB, or any other software that you plan to use for Financial Modeling. More thorough is your understanding of the business, more reasonable are the assumptions and more chances of it flying with the client or investors.

Usually, a pitch deck is prepared before the financial model so that all stakeholders are clear about the business strategy. This is all the more important in the case of start-ups that are raising Series A with no previous revenue track record. An experienced practitioner asks lots of questions in this stage about the strategy, finance, human resources, market, geographies, products, patents, industry, people, and everything else related to the business.

A robust financial model demands an eye for details. If it is related to specific investing situations, questions should be asked around returns, risks, similar business models around, management team, etc. The financial modeling technique to be used in this specific business situation should also be finalized.

Preparing Assumptions: This is one of the most critical steps while preparing financial models. If Assumptions made does not make sense, it renders the whole financial model useless. Other than making reasonable and well-researched assumptions, the experienced practitioners also make sure assumptions could be changed in the model. Multiple stakeholders play around the model to finalize the contours of the deal. The standard aspect of deal-making is changing assumptions in the model. A well-made model is flexible in changing assumptions.

Preparing the model: Preparing financial models on Excel is most common however, models can also be created on R, VB, Macros, Python, etc. There are many off the shelf financial modeling tools that are available. Financial Model Templates are usually available at this stage. Standardization is the major part of the model in this stage. For example, any private company valuation model would comprise, P&L, Balance Sheet, Cash Flow, etc. These statements will have standardized headers and formulas too. The parts dependent on the nature of business are customized. A SaaS business for example will be very different from Steel business in terms of how they acquire customers and project revenue.

Bringing intuition and data together: This is the task of the most experienced operator in the field of financial modeling. It not only requires the knowledge of the formulas in the financial model but also a thorough understanding of business, its competition, and the industry as a whole. When that experienced operator looks at the valuation that the model throws, he instinctively knows if that is correct or not. The assumptions are played around with if the valuation is not in the expected ballpark. A valuation level that makes sense to both Buy-Side and Sell-Side is achieved by this exercise.

 

In the end, we see Financial Modeling is more of an art than the exact science.

The rationale behind outsourcing financial modeling

An expert at Financial Modeling has worked with multiple start-ups, Investment Banks, Private Equity, Venture Capital, and other Financial advisors multiple times before.  They have templates available readily with them and know the right questions to ask. All this leads to a Financial Model that is in tune with what the investor ecosystem demands. If you are looking for Financial Modeling Outsourcing, Magistral Consulting (www.magistralconsulting.com) can help in multiple ways.

 

Magistral Consulting (www.magistralconsulting.com) is a leading player in the Financial Modeling Outsourcing space. It provides Financial Modeling Services. Magistral has specialization in preparing Financial Models for Private Equity, Financial Models for venture Capital, Financial Models for Real Estate, Financial Model for Investments Banks, Financial Models for Hedge Funds, Start-up Financial Modeling, apart from several other highly customized Financial Models. It has delivered Financial Modeling Projects globally to clients in the US, UK, Europe, and South-East Asia. For a business inquiry, you can drop a line at https://magistralconsulting.com/contact/

 

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com, in case of queries.

 

 

 

Investment Research Outsourcing

Multiple Investment Services firms like Investment Banks, Private Equity, Venture Capital, Hedge Funds, Family Offices, and Asset Management firms are looking to outsource investment research in the post-Covid 19 pandemic era. The article describes the concept of Investment Research and the ways to go about outsourcing the process

 

What is Investment Research? Investment Research Definition

Investment Research and Analysis or Investment Analytics combines multiple activities related to investments in Equity of companies (both public and private) and other financial instruments.

The major activities related to securities research are equity research, Fixed Income and Credit Research, Index and Quantitative Research, and Macroeconomic Research.

Another important aspect of Investment research is the support services towards Corporate Finance and Valuations. It includes activities like Investment banking support, Valuation support, business information services, and Private Equity and Venture Capital support

Investment research also comprise of data governance-related activities like outsourced CFO

Is Outsourcing a Good Idea?

Investment Research Outsourcing is fast catching up. Here are the trends that are leading to expending the concept of Investment Research Outsourcing

The pressure to lower costs: Investment Banking is not what it used to be. The digital world has shrunk the opportunities to make big dollars brokering big deals or IPOs. This has also led to pressure on costs. This leads to outsourcing non-critical jobs to low-cost countries like India

Diversification on investment types: An Investment manager has way too many asset classes to handle today. It’s not only limited to public equity but now has diversified into private equity, real estate, cryptocurrencies, commodities, REITs, Index-linked instruments, and many other asset classes. If the investment team is small, it’s difficult to have a combination of skillsets to provide a holistic solution to their clients. As outsourcing vendors understand Investment Research dynamics well, Outsourcing helps in bridging the skill gap. Outsourcing vendors also have access to multiple investment research tools.

Information Sources and Databases: With the proliferation in investment type, also gone up is the requirement of multiple databases for varied data points. It’s a costly affair to maintain access to multiple databases in-house. Investment research tools are also used to fine-tune the data and information

Confidentiality:: There is pressure to keep all information confidential. An outsourced team doing due diligence is perfect, as it leaves no trace of who the client maybe, that is doing the due diligence. An analyst can talk to potential target with or without introducing the client

Quality: Outsourced players have better quality than the in-house team. The outsourced team typically is bigger and has done similar tasks multiple times before. In the process, they usually create an information bank or templates that are ready to use. They also sit on the hoard of best practices for multiple situations. If the outsourced player has its knowledge process well documented, they are in a better position to offer work quality

Effective Supervision: When internal teams are working on an analytical project, it’s difficult for a partner to take time out to get into the details of data, information, and analytics therein. But with an experienced outsourcing player, there are multiple levels of supervision, governance structures, and quality control processes to establish an error-free work every time

Variable Costs: Outsourcing agreement can be changed to pay for hours consumed or assignment outsourced other than hiring a virtual investment analyst. This brings immense flexibility in terms of costs. An investment firm can hire only for the assignment and then go back to the original structure, once the job is done. This is very useful for smaller investment teams and firms with partners only, who need an on-demand investment research analyst. An Investment research team can come together ad-hoc and then could be dismantled when the job is done

What jobs can be performed with Outsourced Investment Research? Outsourced Investment Research Activities

There are multiple elements of the Investment Research Process, that could be potentially outsourced:

Equity Research: Equity Research is the most voluminous work as Investment Banks usually outsource quantitative investment research. Equity research typically revolves around the fundamental analysis of the set of stocks that are tracked regularly. A report carrying all the developments and valuation-related matrices is published once a quarter for every stock covered. These Investment Research Reports are updated periodically. The format of these reports is customized and can be changed as per the client’s preferences. Outsourcing this activity allows the in-house team to cover more stocks than it would have covered otherwise. Also, this task could be broken into multiple streams before outsourcing, say preparing the DCF model, updating the model periodically or analyzing the investor calls from the company’s management. Investment Research Analysts work as an extended offshore team to the in-house team. Investment research software aids the in-house tech capability

Due Diligence of Private and Public Companies: Due diligence is time-consuming and requires huge efforts. Sometimes the due diligence can last even for a year analyzing tons of data and information. A support team that takes up the requests and delivers as promised increases the efficiency and makes sure that due diligence is completed in prescribed time limits and suitable valuations. It also makes sure that the asset generates the intended value for the investors after the investment

Fund Administration and Investor Relations: There are multiple activities of fund administration and investor relations that could be outsourced like Newsletters, MISs, Expense Tracking, Accounting, Company Registration, and multiple other similar activities. Investment Research management software or Investment Research Platforms are used to coordinate multiple related activities

Outsourced CFO/ Outsourced CMO/ Outsourced CPO for portfolio companies: This is very relevant for Venture Capital and Private Equity firms that go into the nitty-gritty of operations for portfolio companies. Rather than hiring a full-time Chief Financial Officer, Chief Marketing Officer, or Chief Procurement Officer, one can just outsource these activities and pay for the services when needed. Some activities related to lead generation in sales and business development could be outsourced as well. Outsourced CFO is the most popular option.

Research and Strategy: Research and Strategy projects are generally run parallel to the main operations. There are instances of hyperactivity followed by the lull in terms of number of the projects and initiatives. Outsourcing these keep the focus of operations’ team on the day to day operations and an unbiased view of the strategic potential from someone who has a fresh eyes perspective on things.

Financial Modeling: Financial modeling is more of an art than science. Asking the right questions and then capturing the details is a skill that is honed over time. Most internal teams are not skilled in these activities as it may be one-off activity once in a while. An outsourcing entity has ready templates and has done these over time to know the exact pain points and the right questions for the perfect financial model. Investment Banking Research Analysts are well versed with multiple aspects of financial modeling

Deal Origination: Deal pipeline should be continually populated for a Private Equity or a Venture Capital firm to run like well-oiled machinery. Most activities related to deal origination can be outsourced effectively. It can again be broken into sub-activities before outsourcing and then outsourcing the non-critical jobs. Decision making related to investments can be kept in-house but company profiling, list generation, initial due diligence can be outsourced. Once the investment decision has been taken parts of detailed due diligence could be outsourced as well.

How to Go About Outsourcing Investment Research?

 

There are multiple investment research companies and investment research firms which assist in outsourcing investment research services by offering virtual investment research analyst. They are varied in size and geographical presence. There are multiple investment research firms in India, that offer low-cost advantages.  You can make a list of suitable vendors either from Google search, references or when a sales leader reaches out to you. The very first step towards establishing suitability is to ask for past work samples. Once you have had a look at the work samples and they appear good quality, ask for a proposal for a pilot project. A pilot is a smaller project that is undertaken before outsourcing the bigger chunk of the operations.

A pilot project should ideally last from a week to a quarter. This should give you ample time to experience the vendor’s capability and skills. Once the pilot is successfully completed, a bigger engagement should be negotiated. Also, make sure the price that the vendor offers is competitive for the quality of services offered.

Magistral Consulting has helped dozens of buy-side and sell-side firms in outsourcing their investment research operations. It is one of the leading Investment Research companies in India with the capability of performing global investment research. It is a one-stop-shop for all requirements of investment research and analysis. It has delivery centers in India that give it a cost advantage with sales offices in all the major cities across the world. To drop a business inquiry with Magistral click, https://magistralconsulting.com/contact/

 

 

 

The author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries. For further details on Magistral and its services, visit www.magistralconsulting.com

 

 

 

 

The Trend of Outsourcing is Finally Observed in the Private Equity Sector

Traditionally Investment Banks have been at the forefront of operations outsourcing. Almost all the biggest investment banks either have captives or have vendor arrangements in low-cost countries like India. Private Equity in comparison is the new kid on the block. Venture Capital is even newer. As the traditional model of a fixed management fee of the AUM comes under strain, Private Equity firms must look for alternatives to bring down the costs. Also for funds, that just invest along the bandwagon, with minimum analysis and fewer analysts to support operations, have started giving an impression to Limited Partners, that they possibly could do it themselves and save on the unnecessary fund management fee. Hence Private Equity needs to expand operations and expand it cheaply. That is where Private Equity Outsourcing becomes increasingly important.

Why Private Equity Outsourcing or Venture Capital Outsourcing is business-critical now?

Private Equity Outsourcing is also referred to as Private Equity Back Office Outsourcing, Private Equity Fund Administration Outsourcing, Private Equity Research Outsourcing, Private Equity Business Process Outsourcing, or Private Equity Fund Outsourcing. On the Venture Capital side, the names that are used are Venture Capital Outsourcing, Venture Capital Fund Outsourcing, Venture Capital Business Process Outsourcing, etc.

Outsourcing has produced long-lasting benefits as Investment Banks have been enjoying it for over a decade now. Here are the major ones:

Cost Savings: It brings in cost savings in the tune of 30-70% depending on the location of the fund operations. This means a higher percentage of management fees can be booked as the fund profits or more returns to limited partners.

Skill Advantages: Private Equity operations are usually performed by small teams. Venture Capital teams are even smaller. All that leads to quick decision making and lower costs, but also results in a lack of business-critical skills. Outsourcing gives access to those skills for smaller Private Equity and Venture Capital teams

Extended Team: Outsourced team acts as an extended team that works on plug and play model. You ramp up when required and dismantle when not required. Just before an acquisition, have a higher number of analysts and after the investment, when work-load lessens, have a lower number of analysts. That leads to costs optimized as per the work-load

Time Zone Advantages: The work moves at double the pace. Teams when they leave work in evenings in the United States, United Kingdom, and parts of Europe, drop a message to the teams based out of India to carry on further work. Similarly, the team based out of India drops the work in the evening their times to be found by their client teams in their mornings to further work on. Hence critical jobs move at effectively double the pace, day and night literally!!

Confidential: A due diligence does not always happen with the target knowing about it. Sometimes it is quick and confidentiality is required. It is difficult to perform due diligence discretely by the in-house teams. It can be done by an outsourced player without the name of the interested party getting out.

So what all could be outsourced under Private Equity outsourcing?

Private Equity Outsourcing trends or Venture Capital outsourcing trends could be divided under one of the following functional specializations being outsourced.

Private Equity Outsourcing or Venture Capital Outsourcing practically works across the operational value chain of the fund operations and management.

Here are the elements that could be outsourced without any problems in quality or productivity:

Fund Raising and Investor Relations: All operational aspects of fund-raising and investor relations could be outsourced. This includes pitch decks for funds and the portfolio companies, Investor reach-out programs, confidential information memorandums or Private Placement Memorandums, CRM data management, and Newsletters

Investment Operations: This is where the maximum potential of outsourcing is. Almost all aspects of investing can be outsourced effectively like industry reports and analysis, country reports and analysis, target company profiles, target company due-diligence, financial modeling, valuations, and other ongoing or ad-hoc assignments related to investment analysis. Private Equity research outsourcing or Venture Capital research outsourcing is one of the fastest-growing areas here

Portfolio Management: If it is for Private Equity or Venture Capital firm that gets involved hands-on in the operations of its portfolio companies, it makes all the sense to establish a ‘Centre of Excellence’ for all the work related to Strategy, Research, Data Analytics, Procurement, and Digital Marketing to be aggregated at one place for all the portfolio companies. If that place is in a low-cost country, it brings in massive cost savings as compared to having similar functions separately in all portfolio companies. Also, assignments can be prioritized as per board meetings. Any project that worked in a given portfolio company can be quickly initiated for another portfolio company as the team is centralized.

Fund Administration: Private Equity Fund Administration or Venture Capital Fund Administration is something that has caught the fancy of limited partners recently. It makes sense to keep the financial reporting of a fund with a third party. This ensures financial risk is reduced. It also leads to best practices of fund management being followed along with unbiased financial reporting to the investors. This is one element that is advisable to be outsourced as a best practice. Multiple elements of Private Equity Back Office Outsourcing or Private Equity Business Process Outsourcing like accounting and expenses form a part of this. This is quite similar in the case of Venture Capital Business Process Outsourcing or Venture Capital Back Office Outsourcing.

Other aspects of fund management that are usually outsourced are Strategy, Research, and Analytics

About Magistral Consulting

Magistral Consulting (www.magistralconsulting.com) has helped dozens of Private Equity and Venture Capital firms in outsourcing their operations. With delivery centers based out of India, it has sales offices in New York, San Francisco, London, Oslo, and Singapore. To drop a business inquiry,  visit https://magistralconsulting.com/contact/

About the Author

Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries or clarifications.

 

What is Outsourced CFO?

Outsourced CFO (Chief Financial Officer) is an arrangement of having all the services of a qualified CFO, without hiring one full-time. It is known as various other names too like “Fractional CFO”, “Interim CFO Services” or “Online CFO”. It is specifically important for start-ups, who due to budget constraints may not afford a full-time CFO, but still need quality CFO services for activities like fund-raising, financial system design, M&A, and IPO opportunities for an exit, cash flow management and securing further working capital financing rounds. CFO services for startups are the most talked about, but outsourced CFO is equally important for Hedge Funds and Private Equity.

It also finds an application in Private Equity and Hedge Funds commonly known as Hedge Fund Outsourced CFO and Private Equity Outsourced CFO

How does an Outsourced CFO work?

It’s natural to ask as to how exactly a virtual CFO performs its functions and what is outsourced CFO duties and responsibilities.

It works like any other outsourced function. A virtual CFO takes the tasks over the mails, chats, or video calls. His team understands the work that is required to be delivered. As a competent outsourced CFO is working with multiple start-ups and he may also suggest the best financial strategy for your company’s size, industry, or situation.

How much Outsourced CFO services cost? 

Pricing of these services varies from company to company and from country to country. Best outsourced CFO companies offer multiple outsourced CFO solutions. They work with the exact estimates in terms of hours required for the job before the job starts. This is done so that there is no confusion as to what will you be paying for the services at the end of the specific task. Sometimes there are monthly billing models for a dedicated person. If the services are based out of a low-cost country like India, costs can turn out to be competitive for the quality of services. An hourly rate of $ 30-100 is currently acceptable. Tasks like accounting are at the lower end of the price spectrum, whereas tasks like financial modeling and strategy are at the higher levels of the price spectrum.

 

Why outsource CFO? Advantages of Outsourcing

There are multiple advantages to this. The best services are about producing business results. Some of the major ones are:

Cost Reduction: Comparing Outsourced CFO vs. the in-house permanent CFO, there are unmistakable advantages in terms of costs. The outsourced option, who is based out of a low-cost country like India can bring down the cost in the tune of 30-70%, depending on the location where you are based.

Team Skill Enhancement: When a company is small, it has got very little resources to have all the skills onboard. A start-up finance team should be well versed with fund-raising, preparing pitch decks, establishing financial systems, and accounting. All of this is difficult to get in a single or a few people. The solution here is to outsource this so that you can take advantage of the skill and team of the outsourced vendor

Variable Cost: When you outsource there are no contractual exit barriers. If a start-up needs to conserve cash, it can defer the outsourcing engagement. Also if it needs hyperactivity regarding finance and would want to quickly add the outsourced team members. Payment is based on pay per use which gives immense flexibility to the start-up

Ramp up and Ramp Down: Multiple functions of Corporate Finance are not permanent. For example, preparing financial management systems is a one-time activity. Once it’s done, it would not be done again until there is a major overhaul required in the financial system. Similarly, a pitch deck will only be needed in case of fund-raising. Hence the demand for corporate finance function is un-even. For meeting those un-even demands, it’s not possible to hire specialists every time. What instead makes sense is to have an outsourced team that can be ramped up or down depending on the work requirements.

Third-Party View: As an outsourced entity is a third party that is managing CFO functions for multiple start-ups, Private Equity Funds, and Hedge Funds, it has limited motivation to be part of financial irregularities. It comforts investors. Investors prefer to invest in a hedge fund or a private equity fund that has outsourced the fund administration process. Outsourced hedge Fund Operations are generally considered a plus for the fund looking for investors

What are the tasks performed by the outsourced CFO? 

Activities Performed by an Outsourced CFO

Activities Performed by an Outsourced CFO

The roles operate at multiple levels like Strategic, Tactical, and Daily Tasks. There are multiple CFO functions along with the CFO for startups Here are the major tasks performed

Strategic Tasks: Fund-raising, Fund-raising documentation, Financial Strategy, M&A facilitation, Finalizing KPIs for Business Verticals in line with the Strategy, Investment Strategy, Strategic CFO services, Business Advisory Services, Consulting

Tactical Activities: Design of Financial Systems, Renegotiating Contracts for Cost Reduction, Structuring and Finalizing Cash Flow Positions, Financial Reporting, Budgeting, Forecasting, Implementing the Best Accounting Practice, Fractional CFO for Startups, Contract CFO

Daily Management: Accounting services for startups, Daily/Weekly/Monthly Dashboards, Data Collection, and Reporting, Reporting KPIs for all Business Verticals, Dashboards and Management Information Systems, Accounting CFO Services

 

How to finalize an outsourced CFO?

There are many outsourced CFO firms in India and elsewhere. Here is a stepwise approach to finalizing an outsourced CFO

Step 1: Prepare the list of outsourced CFO companies in India and elsewhere.

Step 2: Get in touch with the companies and ask for a meeting and CFO services brochure

Step 3: If the meeting was impressive, and you are satisfied with the capability of the vendor ask for work samples and client references

Step 4: Check the work samples and reference and shortlist the vendor for Outsourced CFO engagement letter after reviewing the CFO services proposal,

Step 5: Select the engagement model that is most flexible and responsive to your business needs

 

About Magistral Consulting

Magistral Consulting (www.magistralconsulting.com) is a Research, Analytics, and Consulting agency helping start-ups, hedge funds, private equity funds, real estate funds, and other companies in outsourcing CFOs. It also offers startup accounting services

About the Author

Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any observations or queries related to the article. If you want to outsource your CFO raise an inquiry at https://magistralconsulting.com/contact/

 

Introduction

For the majority of Private Equity and Real Estate firms, the fund administration process is largely in-house. There is an increasing trend of outsourcing fund administration processes by General Partners like Hedge Funds, Private Equity, Real Estate, and Venture Capital funds. The outsourcing of the fund administration process has several advantages. At the same time, however, keeping the process of fund administration in-house has several disadvantages. Some of these are:

High Costs

 Hiring specialist professionals with expertise in Fund Administration is a costly affair. Managing a team on-site is even costlier. Outsourcing some of the mundane functions can save up to 30-50% of costs related to the fund administration process

Lack of expertise

There are multiple complications involved in structuring a fund and then reporting the development afterward like new investments made, valuation of the portfolio assets, and exiting the assets. It’s difficult to get professionals who know it all and even if they are there, its overly expensive

Primitive Investor Relations Process

Mostly when the fund administration process is kept in-house it lacks innovation. There is no automated tool to report the fund performance to LPs. Systems of reporting are archaic with excel sheets and newsletters still being used excessively

Further financing rounds

LPs increasingly are preferring GPs who rely on third parties for fund administration process as that brings in an unbiased view of operations to them

Dilution of focus from the core objectives

A PE firms’ focus should ideally be looking into the operations of portfolio companies, streamlining them and finding out buyers for them and certainly not getting mired with day to day reimbursements, accounting, rental follow-ups, and valuations

Scalability

As the in-house team is fixed, there are scalability issues. There are lots of documents that are to be studied during an investment and exit whereas the workload tapers in normal day to day operations. It can’t be scaled up or down as per the project or fund requirements

Lack of automation opportunities

A specialist outsourcing player brings in lots of automation opportunities as that firm is working with multiple other Private Equity or Real Estate firms on similar issues. Automation is not possible in-house as there is a lack of automation know-how in-house.

Regulatory compliances change much often

Depending on the countries where the fund is listed and the countries where the investments are made, there are a plethora of regulatory compliances that need to be followed. It is a cumbersome and time-consuming task and is prone to faults. This impacts the speed at which the fund should move

Magistral’s Service Offerings Related to Fund Administration and Accounting

Magistral's Fund Administration Services

Service Categories for Fund Administration and Accounting for Funds like Private Equity, Hedge Funds and Real Estate

We provide the following services that are related to Fund Administration and Accounting:

Fund Launch Assistance

We assist in all operational aspects of the new fund launch. Our offerings are:

-Review of the offering document prepared by legal counsel

-Review of Operating Procedures

Accounting and Administrative Services

These services keep the fund operations running smoothly. Our service offerings are:

-Process Investor Subscription and Redemptions, corporate actions, etc.

-Record Trades, Non-Investment Transactions, Receipt/Payment of Intrest or dividends,  all trading and bank account activities, fees and rebates, etc.

-Maintain primary books and records

-Review trade exceptions

-Reconcile cash, positions, market values, etc

-Report client portfolio information

-Calculate management and performance fees from the source documents

-Allocate profit and losses, waterfall allocations, etc

-Prepare investor statements and distribution of the same

-Prepare audit package and draft financial statements including all schedules and footnote as per GAAP

-Liaise with auditors and counsels

Additional Private Equity Accounting and Administrative Services

Here are the services specific to a Private Equity Fund:

-Preparation and distribution of Capital Call letters

-Reconciliation of calls and distributions

-Waterfall allocations

-Fee Calculations

-Deal tracking and analysis

-Performance calculations

Tax Preparations

Here are the services related to tax preparations

-Maintaining tax capital accounts for all investors

-Preparing tax allocations, tax returns, and K-1s

-Communicate with external tax advisors

 

 

We also have an in-house online tool to track fund performance and all other details on a real-time basis. The access to the tool and its layout could be customized as per the client’s requirements

 

If you agree with the nature of the problems stated above and need to outsource the suggested solution, please read on. We at Magistral Consulting offer a full suite of solutions regarding the fund administration outsourcing process. Here are some of the reasons, you should be working with us:

Cost competitive

We are a fund administration outsourcing company with offices in a low-cost country like India. This arrangement ends up building all the advantages of outsourcing fund administration along with the unbeatable price advantages due to the location. An indicative savings of up to 70% is very much possible by outsourcing your complete fund administration process

Proprietary Tools

We have multiple online investor relations and client relations tools that update the data in real-time. This means no follow-up required on anything. Both GPs and LPs get the real-time fund performance snapshot

Middle Office Support

Our middle office support includes EoD reporting, Intraday reporting and reconciliations, performance contribution and attribution reporting, trade bookings and settlements, Daily cash positions, Daily NAV and reconciliations, vouchers and reimbursements, performance calculation and reporting, and monthly factsheets. Apart from this, we offer documentation support throughout the fund set up process in tax havens and other countries

Access to the ecosystem of professionals on a need basis

We have a roaster of professionals who may bring in expert opinions if the situation so demands like the liquidation of assets, legal hassles, translators, and lawyers specializing in a specific country’s commercial laws

Global Presence

With delivery centers based out of India for cost advantages and sales offices or resellers in San Francisco, New York, London, Oslo, and Singapore, we understand the global nuances of the fund administration process

About Magistral

Magistral Consulting (www.magistralconsulting.com) has helped multiple Private Equity, Venture Capital, Hedge Funds, and Real Estate Funds in outsourcing Fund Administration Process

To explore the opportunity of working with us, talk to our client references, or having a look at our work samples related to the fund administration process, please write to Prabhash.choudhary@magistralconsulting.com

 

About the Author

The author is the CEO of Magistral Consulting which is a premier research and operations outsourcing firm for Private Equity, Real Estate, Investment Banks, and Family Offices across the globe. He could be reached at Prabhash.choudhary@magistralconsulting.com for any queries.

 

 

Introduction

Covid-19 is a massive challenge not only for the global economy but for humanity as a whole. This is once in a lifetime black swan event which is going to rewrite the rules of businesses across geographies and industries. As the details and impact of this tragedy are still unfolding, here are the steps that Private Equity firms can take, including Private Equity Operations outsourcing, which will significantly mitigate the risk in these tough times:

Focus on Employees

A PE firm should first and foremost secure its employees. This can either be done through offering work-flexibility or giving incentives for effective testing and treatments. The partners should act as the role model and it makes sense to communicate the firm’s commitment towards the health and wellness of their employees. In the scenario where all the work is done remotely, it also makes sense to communicate more often through continuous audio and video calls.

Streamline Processes

An event like Covid-19 will test the Business Continuity Planning elements of even the most agile organizations. It’s an opportunity for Private Equity firms to fine-tune theirs. Making sure all important elements of the business are efficiently run is the need of the hour, whether it is about continuously looking for more investment targets, having effective investment committee meetings remotely, and being in touch with the management of portfolio companies for any assistance required. Board and other meetings need to be done remotely and assure the portfolio companies of the financial assistance and other support. This is also a good time to test operations’ outsourcing because if anything, this is going to be the time of hyperactivity, fishing for opportunities. An outsourcing agency can help in taking care of the additional work-load

Zoom in on Portfolio Companies

Covid-19 will impact every business on the planet. PE firms should dedicate most of their time in assessing its impact on their portfolio companies. It will largely depend on the industry in which the portfolio companies are. Some portfolio companies say in the business of Pharma, Healthcare and FMCG need to move faster to adjust their processes to take business advantage and to make themselves available for this humanitarian challenge. Also, there will be some businesses like frontline retail, hospitality, and airlines that are bound to take a hit. Analyzing where to focus the resources and energy is going to be crucial. A PE firm that moves quickly and decisively during these times will see earlier and more profitable exits as compared to peers in the future

Financial Challenges of the Portfolio Companies

Once it is identified as to which portfolio companies will need financial support, the next step would be to get into the details of the Balance sheet and business of these portfolio companies to fine-tune the contours of the package. Here are some of the operational areas that could be looked into: 

-Vendor Payments: Can payments to vendors be postponed/staggered? Can contracts be re-negotiated for better terms?

-Collections: Can collections from clients be expedited? Is it possible to collect early by giving discounts? What has been the impact of Covid-19 on customer’s businesses? Is there leverage available? If the impact has been positive, can it be monetized quickly?

-Debt options: What are the short term debt options available to the business? Which is the most competitive option in terms of interest rates? Can there be some advantages that can be taken on the back of historically low-interest rates currently prevailing?

-Further infusion of cash: If the business has long-term viability and would emerge victorious after the Covid-19 challenge, it might make sense to offer cash to the portfolio company as an equity or debt

-Opportunities of M&A: If there are portfolio companies that are similar and operate in the same industry, are there enough synergies to justify an M&A to tide over the financial challenges?

 

Putting Dry Powder to Work

Private Equity as an industry has entered this phase with a record dry powder with them. It is time to put that dry powder to use. If there are any businesses that are going through tough times and would need urgent infusion to stay afloat, recovery would be swift and returns may very well justify the risk. The trick here is to stay in the industry where the firm has expertise in, and may very well be aware of the targets and its operational challenges to decipher if the challenge faced is short term or strategic

Communicate well with LPs

Limited Partners like everyone else are panicked too. In these times of uncertainty, they look forward to receiving as much information as possible on their past investments and the impact of Covid-19 on the operations of the firm and the portfolio companies. A more frequent and dedicated newsletter highlighting all the risks and rewards would go a long way in earning their long term loyalty with the firm and the fund. It’s time to communicate well and communicate more, albeit remotely

 

Overall it can be concluded that if handled effectively, these times can very well turn out to be an opportunity for global private equity firms. The need is to be operationally agile and hyperactive.

 

We wish as humanity we see through this challenge successfully and emerge stronger out of this. Stay Safe!! Stay Indoors!!

Magistral Consulting has helped multiple Private Equity firms in reducing costs through operations outsourcing. To drop a business inquiry visit here

 

The Author is the CEO of Magistral Consulting (www.magistralconsulting.com), a firm that helps global Private Equity firms in outsourcing operations. He can be reached at Prabhash.choudhary@magistralconsulting.com for any queries.

 

Magistral Consulting (www.magistralconsulting.com) was approached by a Family Office for an assignment related to finalizing a Long-Short Equity Hedge Fund. Our assignment was to find a fund that generated alpha over a long period with minimal risk. We also needed the fund to be focused in a specific global region, have minimums in terms of investment value, a threshold AUM and vintage of the fund. Here are the steps that we took to identify the fund:

1.      Secondary Research for all best performing Asset Managers in the region: We searched the internet for all the best performing Asset Managers in the region. It ended in us drawing a list of more than a hundred Asset Managers in the region. This was pretty much the universe of Asset Managers in that specific region

2.      Finding the fund satisfying the criteria with the Asset Managers: We reached out to all the Asset Managers for the funds that satisfied our criteria (like minimums, AUMs, regional focus, etc.). This reach-out was done over the emails and several calls.

3.      Information gathering from all relevant Funds: We asked for Net Returns MoM since inception for all the funds that satisfied our initial criteria. This information was fed into our analytics model that calculated all fund performance parameters like Cumulative Returns, Annualized Returns, Standard Deviation, Sharpe Ratio, Sortino Ratio, Max Drawdowns, Average Up-capture, Index Capture, Average Down Capture, Index Correlations, and several other objective and subjective parameters. This process took weeks as many Fund Managers needed support from us in calculating the metrics, some needed multiple follow-ups for the information to be provided to us. The picture became clearer when all returns information was fed into the model separating the performing funds from the non-performing ones. The robust model also ensured proper consideration of risks taken by the fund manager to deliver the returns. Best performing funds were shortlisted for the due diligence

4.      Due-Diligence of shortlisted funds: Due diligence involved preparing a detailed report running into tens of pages analyzing all operational aspects of the Asset Manager and the fund. The parameters on which information was collected and analyzed, included Information on Human Resources, Compliance Frameworks, IT and Business Continuity, etc. for the Asset Manager or the Management company. For funds, we collected information related to Legal framework and structure, Transactions, Valuations and Accounting, Risk Management and Monitoring, Service Providers (Admin, PB, Auditor, etc.), Ownership Structures, Current Investors and their holdings, Key personnel bio and their relevant experience, Exception to general allocation rules and several other parameters

5.      Evaluation of fund performance on all parameters: There was a sanity checklist that was made. A questionnaire was also designed to collect information from funds over a meeting. Once verbal information was collected documentary proofs were analyzed to prepare the level of depth related to each parameter. On the basis of numbers, proofs and documentation; a rating was arrived at, for each of the fund parameters. As per the weightage of each parameter and fund performance on all parameters, a recommendation was made for the investment in one chosen fund.

This was one of the examples where the Magistral team worked closely with the client team to arrive at a recommendation that moved millions across a cross-border transaction, into a fund that has a solid track record of providing superlative returns when compared to others.

We are in the process of doing due diligence for several other funds as I write this.

The Author is the CEO of Magistral Consulting (www.magistralconsulting.com), a research and analytics firm, that helps Family Offices in identifying best performing fund managers. For any inquiries you can reach out to him at Prabhash.choudhary@magistralconsulting.com

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In the last decade or so, almost all functions of investment banking have seen major disruption. An investment bank from pre dot com bust era is almost unrecognizable in the present scheme of things. Almost all banks are struggling to keep in tune with the historical profits that the industry is quite used to. It’s an era where factors like Technology, Outsourcing and Innovation are relaying the rules of the game for Investment Banks

 

Here are the major trends that are being observed in the industry

 

Changes in the IPO business

 

Traditionally assisting corporates in accessing the public markets has been a major source of revenue for investment banks. Banks have typically charged around 3% to 7% of the money raised as their fees. Bigger and simple IPOs commanded less percentage while smaller IPOs and complex deals commanded higher fees percentage. The number of IPOs has gone down significantly and the average size of the fund raised has increased. Also, most bigger IPOs have been from tech firms like Facebook, Uber, and Softbank. As the tech firms are already a household brand name even before the IPO, it does not necessitate a reputed Investment Bank underwriting its shares. That gives more bargaining power in the hands of these tech firms as compared to Investment Banks and hence the fees commanded by Investment Banks are under stress.

 

Apart from the major trend of lesser IPOs and more bargaining power to tech clients, here is what that is further making the industry more challenging:

 

The trend of staying Private

 

The last decade also saw the emergence of multiple Private Equity and Venture Capital firms, which formed an alternative to raising funds by going public for the companies. Firms like Softbank have mega-funds which have raised hundreds of billions of dollars to be invested in companies. Raising money from private investors is faster and attracts lesser scrutiny from regulatory authorities. Companies can also function independently in a much efficient way without the pressure of retorting to QoQ profits that public companies are subjected to. This has led to even fewer companies using the services of Investment Banks to go public.

 

Direct Public Offerings

 

This concept was first shown in practice by Spotify which went public without underwriting its equity. As tech firms have previous acceptability and brand established, It is easier for them to access money due to its own brand name, rather than a Goldman Sachs or a Morgan Stanley backing it up. Spotify has shown the way to other tech firms, who probably will use this route of public listing more and more in the future

 

Alternative Exchanges

 

There have been multiple substitutes for traditional stock exchanges like NYSE that have cropped up. These exchanges like Investor Exchange or Long term Stock Exchange (LTSE) provide an alternative to list without many complications. All of this leads to a further reduction in the fees commanded by Investment Banks. There have also been multiple platforms that bring together investors and companies using technology. One such platform, Axial Network is now known to be the Tinder of M&A.

 

Initial Coin Offerings

 

Still at its infancy but ICO is expected to be used more and more in the future. Here a company offers its equity or right to equity in a blockchain or crypto-based coin. It is still facing too much suspicion from regulatory authorities to become mainstream anytime soon.

 

 

 

 

 Changes in the M&A landscape

 

M&A activity saw a major boom in the 80s and 90s on the back of public companies looking to improve their EPS and hence improving their valuations. Investment Banks had a bigger role to play as M&A activity was driven more from a financial angle. Presently most of the M&A activity is on the back of the strategic vision of the management, rather than looking for a quick bump in the EPS. This has led to more active role play by the Management and less importance to the value that Investment Banks bring to the table

Apart from these following are the underlying trends that are rewriting the rules of M&A

 

Boutique banks and Specialization

There are multiple boutique banks that have shown spectacular growth in their business on the back of specialization. Banks specializing in tech space have shown bigger increases when compared to bigger and more generalist banks. This is because boutique banks understand the industry well and are in a position to recommend vision, strategy, and synergy based M&A targets.

 

Technology

There are multiple platforms that are aiding to DIY M&A. Axial network, which is known as Tinder of M&A, connects start-ups with investors, is showing tremendous growth regarding the transactions on its platform

 

Changes in Asset Management landscape

 

Asset Management which still forms the major chunk of revenues for bigger Investment Banks is also going through multiple changes.

Although the major chunk of revenues of bigger investment banks comes from Asset Management, it seems Banks are losing to specialized asset management firms when it comes to traction and growth.

After Lehman brothers collapse, regulatory changes led to bigger investment banks to hold bigger percentage of funds as liquid. This took away the advantage that the banks had in terms of their scale. Specialized Asset Management firms turned out to be agile and relatively less susceptible to regulatory constrictions. Specialized ETFs have given better returns than the funds managed by Investment Banks.

 

 

Changes in Equity Research

 

Equity research for investment banks has been commoditized to a great extent. A huge chunk of information is available that is researched sometimes manually and sometimes using automated programs, but there is very little that is being absorbed. It meant less for the Banks and Clients and probably was not even being used in the way envisaged. Banks did not care much as the cost of the research was bundled along with the cost of a trade.

A recent European Commission’s directive called MiFIID II is set to change all this. Under this Banks are expected to bill the cost of research separately. This has led to banks across the globe, taking notice of their Equity Research operations. Now that the research would be paid separately, it makes sense to evaluate the value addition it brings to the table. Investors also are now more alert in consuming these reports given that they will be paying separately for this. All of this will lead to the elimination of useless repetitive and non-insightful equity research

 

Changes in Sales and Trading

 

Of late after the Lehman Brothers episode, there have been multiple curbs on how much a Bank can trade in the market with its own and client’s money. This has led to curbs on the capital available for trading and thus killing another lucrative source of revenue for Investment Banks

 

 

How are banks countering all this?

 

 

Large banks have taken different strategies to counter the challenges I mentioned earlier. Here are the major types of strategies followed by them:

 

Offloading the loss-making verticals: Banks like Morgan Stanley are letting go business divisions that are not profitable and at the same time investing more and more in verticals like Asset Management, that is turning out to be increasingly profitable

 

Investing in technology: Others like Goldman Sachs are investing heavily in Technology and Platforms. They are also outsourcing a lot of operations to Low-Cost countries like India. JP Morgan is coming up with Blockchain-based crypto called JPM coin

 

Still in the world of Finance, the prestige of investment banks hold significant sway. Changes have arrived but still, the pace of change is expected to be slower as compared to other industries.

 

The Author Prabhash Choudhary. is the CEO of Magistral Consulting (www.magistralconsulting.com), a firm that helps Investment Banks in outsourcing their operations. He can be reached at prabhash.choudhary@magistralconsulting.com for any queries.

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Investment Banking as an industry relies on the brightest of the minds in the financial world. So when the concept of “outsourcing” is discussed, it is frowned upon by some as being unreliable and low quality. Doing everything in-house is a matter of “Unique Selling Proposition” for the bank.

Is it really so?

In this article, we will build a case for outsourcing against doing everything in-house.

Here are the reasons that you should consider before deciding ‘for’ or ‘against’ outsourcing.

If you are growing, doing everything in-house will bring down your pace of growth: For any organization, whether it’s an Investment Bank or any other, growth is a piece of good news. But it also brings with it, the huge uncertainties in terms of cash flow. You secure that big client that you were chasing for months and you sign a contract. You hire and then realize that the client has shelved the project. Now new hires sit there in your cost bucket without any revenue against them. If you let them go, it is usually bad for the brand. Hiring bright associates then becomes difficult once you are out again for hiring. Outsourcing here acts as a temporary patch. You get the project, you outsource it till the client stabilizes and then decide what to keep in-house and what to outsource. It brings down the cash flow risks dramatically. Outsourcing keeps pace with your project flow and you don’t wait for months for the new associates to join you. Read further, if you think handing an important client to outsourcing may be detrimental to your business.

 

Quality concerns around outsourcing are unfounded:  Another factor that is sighted against outsourcing is quality concerns. I encourage you to see the work that the Top 10 global investment banks are getting done in India. All of the top 10 banks have an India connection. Some have their biggest global delivery centers or captives based out of India while others have big contracts with Indian vendors, but no one thinks the quality is bad and avoids India altogether. Do you think this scale would have been possible with sub-standard delivery quality? You need to think again!!

 

There are unmistakable advantages in terms of costs: The complete business case of outsourcing is usually built around saving costs, and it is very difficult to miss the details. Depending on your location in the US, Europe, the UK, or Australia, outsourced analysts are cheaper in tune to 30% to 80% of the costs of onsite analysts. There are further savings in terms of lower supervision time, costs of databases, skill bandwidth of the whole outsourced team as compared to a few onsite analysts and the flexibility with which new resources could be added or removed

 

If you are small, you can’t do without outsourcing: It is understood that outsourcing will bring mighty savings on top of the headcounts in thousands. Though that is correct, there are immense benefits for small setups too. A small set up sometime may miss some of the critical skills that bigger banks have. Outsourcing plugs in that skill gap in smaller banks. Also with purse strings tightened for smaller banks, outsourcing sometimes is the only option for operational continuity without breaking the bank.

 

Not all Investment Banking jobs are strategic: There is absolutely nothing strategic about entering expense voucher details in excel or making the fund pdf editable, but these are the jobs that still need to be done and possibly at the lowest cost. Outsourcing is not only an alternative but the best one for these mundane tasks.

 

Selling “Outsourcing” to your clients: There is still a notion that Investment Banking clients will frown on outsourcing operations as it is perceived to be low quality. If a bank does everything in-house, it sends a signal that Bank has too little to do on its own. What advantage does it bring to do mundane jobs in-house? On the contrary, it’s perceived that the team is inefficient and has high maintenance costs. Who foots this bill? Your clients!! Say your management fees might come down by a few percentage points due to outsourcing and see the perception of outsourcing change. Keep the critical tasks in-house and outsource the non-critical ones.

 

Assignments move at double the pace: Outsourced team acts as an extended team to the onsite team. With time zone differences, it is like the combined team is moving at double the pace working in the day and the night as well. So an assignment that would have taken 30 days to complete may see itself being finished in 15 days’ time. Agility does have value in the marketplace.

 

No exit barriers from contracts: If you are not happy with the quality, timeliness, and responsiveness or have any other issues with your own business or the quality of services, the contracts have a swift exit clause. You can terminate the contract with a few days’ notice.

 

Competitive pressures regarding outsourcing: As suggested earlier in the article, the top 10 global banks are outsourcing work to India. It gives them an immense advantage in terms of costs and hence pricing their services to their clients. Someone who is doing everything in-house will be costlier without adding any additional value to the client. Competitive intensity regarding outsourcing is huge, and it may force everyone to outsource at some point. Early movers may rope in significant rewards though.

 

Hiring an individual Vs. Hiring a team: When you outsource, you don’t hire a single individual, you also hire the expertise of a team that is working across investment banks for years. This means an Investment Banking standard quality being delivered on day 1 as compared to months for an onsite hire.

 

Data Security and Privacy: Data security is a big concern for outsourcing. For this, it is suggested that outsourcing contracts should carry a penalty in case of a data breach. Usually, outsourcing players are organized on the basis of support teams for each client. There is little interaction between teams on assignment related issues. One analyst works with only one client at a time and hence there is safety in terms of sensitive news leaking to other clients. There are IT arrangements as well in terms of secured workplace access, IT firewalls, and inspection of all outgoing emails and online activity of each analyst.

 

If you are still tentative about outsourcing, please get in touch with Magistral Consulting (www.magistralconsulting.com). We support dozens of Investment Banks in outsourcing critical and non-critical work. We have a step-by-step, no-risk approach for Investment Banks to reduce their operational costs. A typical conversation starts around our capabilities. Our work samples are provided to the clients. Clients also get to talk to our references in their home countries, who have used our services. Further, we will ensure you get a pilot done to see the quality of our work before deciding on a long term engagement.

This step by step method ensures there are no financial or quality risks associated with you deciding to outsource your operations.

The author is the CEO of Magistral Consulting. Magistral has helped dozens of Investment Banks based out of the US, the UK, Europe, and Asia in outsourcing operations. He can be reached at Prabhash.choudhary@magistralconsulting.com in case of queries, observations or business inquiries.

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Over the years our team has worked on multiple pitch decks, some raising funds for a Private Equity fund, some looking for co-investors, some pitching a real estate investment while others for incubators trying to exit a portfolio company.

Recently the demand for pitch deck outsourcing has gone up due to more sophisticated demands from angel investors and VC firms for a robust business plan. Also, pitch deck design requirements have also gone up by several notches. A potential investor judges the business potential of a startup from the PowerPoint Presentation or the pitch presentation that details the business, its target audience, clients, its social media presence, marketing collateral, customer acquisition strategy, digital marketing strategy, and several other operational ideas about the upcoming startup. A pitch deck that explains the business idea well gets multiple investors. A pitch deck template with attractive graphic design that also explains the business model well will get the attention of angel investors. A successful pitch deck explains the value proposition, details out the financial model, talks about all the market segments, that the small business is trying to reach out. Investor pitch should be the entrepreneur‘s complete idea of the business for a successful fundraising round. It should have all the branding aspects in terms of colors, logos, etc. Financial projection should clearly spell out revenues, costs, valuation, and marketing plans with calculations around customer acquisition cost and strategy. It’s then only that the pitch deck will resonate with your target audience which is angel investors or VC funds.

Almost, always there are some consistent characteristics of the pitch deck that eventually pulls it off on the road-show. Here are these characteristics of the winning pitch deck:

1. Number of Slides: The number of slides for an investment pitch deck is ideally is 10-12. It can go as high as 20, but anything over that is overkill to raise money. A pitch that we designed only on 5 slides, for real-estate investment, was used to raise as much as 10 Million USD in co-investments

2. The flow of Presentation: Information has to flow like a stream of water. You introduce a subject, just to tease the reader and before an obvious question, your next slide is sitting there, answering it. Slides are as engaging as a story-book. Typical example: Start with a universal problem that everyone acknowledges, detail the current ways of solving the problem, go onto propose how all existing solutions are ineffective, present your solution that is different from everything else out there, give business case for your solution, your funding requirements, what can investors expect and finally closing it with the team profile and their accomplishments. Everything flows one after the other like an engaging storybook

3. Structure within a slide: All tables and structures used consistently follow the MECE principle. MECE stands for Mutually Exclusive and Collectively Exhaustive. A combination of any number of bullet points on a slide has to be MECE. All bullet points combined should exhaustively cover all aspects of a subject and at the same time, no two bullet points should convey anything similar

4. Brand logo and color consistency: Rainbow of colors look good on a book that carries nursery rhymes, but for something that is meant for an Investment Banking crowd, it needs to be soberer. Limited colors on slides which specifically need to be derived from the brand logo, shows the professionalism of the presenter. Loud colors can be used for investment themes related to B2C but for anything B2B, hues need to be tapered down

5. The structure across the slides: If something is repeating again and again on multiple slides, like fund returns of different funds on different slides, the corresponding data needs to be at the exact same place on every slide. It’s like while you quickly move from one slide to another, tables should not dance from its place. The eye of the recipient gets trained to see specific data at a specific place on every slide

6. Less the text, better: For everything that can replace a text is welcome. A picture says a thousand words and one should use info-graphic or a picture to convey rather than writing a thousand words on slides

7. Back-up Material: Although fewer slides are there on a pitch deck, every number that is used on the slide should have a detailed back-up ready to be opened in case of a query. A 5 slides Pitch Deck is usually preceded by 30-40 page business case or a project plan. Another excel carrying P&L, Balance Sheet and Cash Flow projections almost always follow. Financial Modeling is done for more complex investment plans

8. Team Bio: It’s the team that usually gets funding. Their credentials and experience are almost always highlighted in the pitch deck. It needs to be made sure that pictures of all partners are there, preferably in similar professional outlook, clicked at similar zooms, preferably in professional or no background

9. Simplifying the content: We work on multiple concepts that are very “Sciency” and “Academic”, like a core tech, topics that are purely academic, a scientific breakthrough or global epidemic. Material that is available on the topic is good for pursuing a doctorate but the idea is to simplify all these core concepts to the level that is easily understood by investors and in the least amount of time.

There may be several other things that might be important for a pitch deck in a niche area or a specific situation, but almost all the winning pitch decks in our experience have these common characteristics.

Magistral (www.magistralconsultig.com) has worked with multiple firms like Private Equity, Venture Capital, Investment Banks, and Asset Management companies in supporting their fund-raising efforts. We have prepared logos, website and website content, pitch decks, project plans, industry reports and financial modeling that support the fund-raising efforts of our clients.

The author is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries or work samples.

 

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Business Research is an important element for a growing company. The requirement for effective business research is to be on the dot, quick, actionable and still cheap. If you are at a company, managing it is comparatively easy, with a vendor who has a long-standing relationship with your company delivering on expected assignments which are often repetitive in nature.

But when you have the responsibility of multiple portfolio companies, which may be operating in similar or different industries, there are other complexities that creep in. The nature of assignments may not be necessarily repetitive; a specialization may be required to understand the nuances of valuations, fund-raising, and exits. Also, all companies are different cost centers with their dedicated management and boards. As the mandate is to grow companies aggressively, a lot of research may be required in traditional areas as well as lead generation, market studies, competitive intelligence, etc.

A solution that investors have been working with is to have a Research function or resources in each of the portfolio companies. Not only does it lead to higher costs, but there is also no cross-pollination of learning from one company to another. Research now is so sophisticated that it requires not only the research expertise but elements of social media, design, editing and when dealing with an investment portfolio, knowledge of fund-raising environment too. It’s difficult to have all these skills in a single company without incurring challenges in terms of costs and resource availability. Picking up a resource from one company and deploying it in another will have challenges as both entities will have separate P&Ls.

A solution that plays further over the advantages of traditional outsourcing is to have a centralized research team in a low-cost country like India. FTEs (Full-time Equivalent) act as full-time employees of the investors. The team can be scaled up or down depending on the work requirement. Work can be prioritized in accordance with the schedule of board meetings of different companies. The investor gets multiple resources with varying skills at a cost centralized for multiple companies, that doesn’t break the bank. Invoices can either be raised on the investor, who can then allocate it to the portfolio company or directly to the portfolio companies. Costs are competitive as the scale of work gets combined for multiple companies. Specific events related to fund-raise, valuations, M&A and exits, that trigger heightened research demand, can be met with additional resources offshore and after these events, the team can be ramped down. Cross-pollination of knowledge from one company to another is seamless and doesn’t get lost in transition.

Magistral Consulting has helped multiple investors, who are on multiple boards to implement their ideas across the portfolio companies with centralized outsourced research function.

The Author of this post is CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsulting.com for any queries, work samples or clarifications

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Why Private Investments are more important than they ever were?

Wealth creation has moved from ‘Post-IPO’ in public markets to ‘Pre-IPO’ in private markets. All indicators related to private investments are at an all-time high. Gone are the days, when institutional investors would invest in primary and secondary markets to stay in the security for the long term, for continued wealth creation and regular flow of dividends. Increasingly, experienced investment managers are investing in private markets, scaling the company, merge it with others, and take the bigger entity public to create wealth for themselves, while limiting the returns upside for retail and other institutional investors in the secondary market. Robust Due diligence exercise is imperative.

At least in the near future, it can be said that IPO will not be the source of funds for the companies also. It is going to be the private investors in the form of Angel, Private Equity, and Venture Capital firms. Companies are increasingly postponing their IPOs in favor of private investors due to less regulatory requirements, the savvy nature of investors to back maverick ideas, less number of stakeholders to manage, and industry-specific knowledge of investors that can be used for further scaling companies. But private investments from investors’ point of view are very different from investing in equities where all the data is available upfront. Due diligence of private target companies is a painstaking process. As part of due diligence, the following are the items that need to be checked before a private investment is signed and closed:

Founders and the Founding Team: We hear this often that a VC backs a ‘team’ and not a company. So when we talk about due diligence of early-stage investment, the team acquires the center-stage, in terms of investment decision making. There are a host of questions that need answering before backing a founding team. For example, whether one of the founders was sacked in the last job due to charges of sexual harassment against him? How founders behave with their teams when investors are not around? Are the educational and experience credentials claimed by founders correct and verifiable? Has someone spoken to the references provided? And so many more!!

When millions are riding on the personal conduct of a group of people, no investor would want to repeat a ‘Travis Kalanick’ episode. It is thus imperative to get into all the minute details about the founding team’s business and personal conduct.

Market and Industry of the Target Company: Another oft-repeated saying of the Alternative Investment industry is that ‘it is better to invest in an average company in a rising industry rather than backing an excellent company in a declining industry’. To be on the top of the industry trends and how it is going to unfold in the near to mid-term is imperative for risk aversion of the invested capital. An industry with all its hues of multiple sub-industries with cross-germination of tech into it needs a specialist intervention in terms of market research and forecasts

Past Financial Performance: The target company usually provides data on revenue and market traction. Although dollars coming into a bank account is a fairly straight-forward end KPI, there are multiple other market traction KPIs that finally ensure dollars in the account at some point in time in the future. These traction KPIs are industry-specific like the number of paid customers, freemium customers, free to paid customer conversion rates, claimed market share, etc. It would have been fairly simple if the company would have provided these numbers accurately. Sometimes clouds are deliberately maintained on data. One sees a month-on-month increasing number of customers, but what is not known is the percentage of paid customers amongst them or worst still, maybe the whole surge has come from free membership campaigns. Devil is in the details. Talking to market and tech experts along with customers will go a long way in ensuring the right investment decision.

Future Financial Performance: Future financial performance is usually a linear or exponential extrapolation of current performance or sometimes just pulled out of the hat to sell a rosy picture of the future. Many times, the company is struggling to meet expenses currently, but future forecasts graph takes off like a rocket headed into space. All these forecasts need to be taken with a pinch of salt. It’s worthwhile to check and challenge all the assumptions that have gone into coming up with the financial model and the forecasts. It is a factor that could literally make or break for your millions going into the private investment.

Customers: Proof of the pudding is in the eating. Customers talking well of a company is a good sign for investors. Also, customers vote with their dollars. Talking to them gives an idea about the customer journey, pain points, existing alternatives to product or service and what exactly would be needed for them to shell out those dollars for the product or service. This requires a specialist Market Research agency that has expertise in ghost shopping and customer surveys.

Employees: One of the first people who bought into a vision is the ‘employees’ of the start-up. A place that has happy employees speaks louder than any other credential for the founder. At the same time, a toxic culture will be quicksand that will absorb millions of dollars in no time, without a blip on revenue numbers. Most founders are not ‘Steve Jobs’ type visionary. They are average folks, who get stressed with day to day running of the start-up machinery, which takes a toll on them. How do they behave with their employees at that point in time is a fairly good indicator of an individual’s potential as an effective stakeholder manager currently and in the future? A research agency can provide honest feedback on this indicator.

Regulations: Are there any regulatory risks in the business, that will come into play after scaling up of operations? Thorough research and liaising with government agencies can go a long way in avoiding statutory and regulatory risks that might plague your investment in the future.

Other Investors: Old boys of the industry do remark that ‘VCs and PEs hunt in packs’. It is heard often. Other investors are more of a support than a threat. If they have voted with their dollars than it might be a good company. Also in situations of B2C tech where winners take it all or a small group of winners take it all, funding dollars make the difference between the winner and the laggards. Multiple investors backing a company will take care of those dollars, which means your own investment is safer. At this point, verifying the claim of the company about other lead investors, co-investors, and conversations going on needs to be verified by a neutral agency.

Magistral Consulting helps Private Equity, Venture Capital, Family Offices, and Investment Banks in performing due diligence for private assets. All these steps are taken care of, in our proprietary research method that is designed to eliminate potential investment risks. A concise weight-based evaluation metrics with clear recommendations about future potential and risks are delivered in aggressive timelines. As our delivery centers are based out of low-cost countries, it builds in significant savings in terms of research costs as well. To know more, please get in touch with info@magistralconsulting.com

The author is CEO of Magistral Consulting and can be reached at prabhash.choudhary@magistralconsulting.com for any clarifications and queries.

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Marketing at Venture Capital and Private Equity firms is a trend that is still shaping up. It was in year 2001 that Marry Meeker published her first internet report, which could be tentatively marked as the beginning of Marketing as a function in Private Equity and Venture Capital echelons. Marry Meeker’s influence today can be gauged from the fact that Alibaba’s stock dropped 6.25% on the day of its latest report release.

A lot has happened since 2001, industry grew and contracted at-least twice, first during the dot com bubble crash of 99-01 and then Lehman Brothers aftermath of 07-09. But application of science and art of Marketing at Venture Capital firms is more resounding than ever before. Here are the pillars of a Private Equity and Venture Capital firms’ brand building efforts:

Reputation: Reputation takes years to build. So does that mean a GP which has not seen even a single cycle of fund-raising, investing and harvesting, which typically takes a decade, can’t do anything for years regarding this? Yes, it takes years to build but with emergence of connectivity across the globe, that cycle of years can be short-circuited with Marketing hyper activity at the start. A reputation can be created online in a relatively shorter span and the good news is that online reputation matters as much; and greatly influences the offline reputation too. What is online reputation? It’s the content that is available against your firms name on the net. Its combination of industry reports, PR, blogs, partners’ speaking gigs and any events that you may have conducted in the past.

Communication: Your brand of communication defines how you are seen in investor and investee communities. Communication plays a vital role in your positioning with LPs and entrepreneurs. Great firms focus in multiple aspects of their communication with both of these communities in terms of frequency, quality, availability and relevance. David Skok’s blog ‘For entrepreneurs’ is a fine example of a great communication strategy aimed at investee companies in terms of frequency, quality, availability and relevance. Twitter has also come to rescue the communication efforts of Private Equity and Venture Capital firms. Smart firms are using it to communicate what they stand for

Experience: Nothing speaks louder than an impressive delivered IRR figures from the past. If you have completed a cycle and have returned 5-10X to investors, you are in an exclusive club of a few who can be proud of being there and done that. Softbank’s growth is miraculous for a firm that came into existence in 2004. It’s simply on the back of impressive returns that it has generated for its investors and its Marketing blitzkrieg that follows all its activities. No wonder its 100 billion dollar vision fund closed in record 7 months’ time. So then, is it all over for fund managers starting now? The other alternative is to sell the expertise of partners through a smart content management strategy. Better still is to chose a niche technology that itself is new and there are not many fund managers who can boast of harvesting profitably. Almost all good emerging managers focus on emerging technologies; and who is perceived good there? One who has the most relevant content that can be found online and offline.

Specialization: Branding and communication strategy revolves around pedalling the specialization of a Private Equity or Venture Capital firm. A marketing strategy is weaved around a specialization and would go haywire in case there is no specialization. Specializations that firms chose can be a specific technology like AI, Blockchain, Crypto or a specific industry like logistics or Real Estate. Specializations are also on the cross-sections of a specific industry and a specific tech like AI in healthcare. Investing strategy itself forms specialization in many cases. New strategies like “second seed”, “very late stage funding”, “Pre-Series A” amongst others still have space to accommodate new fund managers. Here it’s imperative to chose a specialization and follow it up with an immaculate Marketing strategy

Methodology: Methodology is what differentiates boys from men in the VC game. A process oriented firm is stable in turbulent times and can beat returns expectations of the investors. A firm that is cut above the rest will have a well documented process for fund-raising, investor relations, investee relations, deal origination and sourcing, portfolio management and an excellent and well timed exit strategy. All VCs claim they have processes but most of the time it just stays just in their heads and is not documented. These processes give a leg up to your marketing effort. Once processes are established, focus can move to reduce the costs of operations, which means more dry-powder for investments and better returns for investors.

….but my fund is small, I may not need marketing!!

An economic cycle bubble bursts every decade or so. With geopolitical tensions in biggest economies, we may be on the cusp of another one. If your fund is small and you don’t invest in Marketing, you may not survive the next bubble burst. Maiden fund is small and second fund may just never come, pretty much wrapping up the business. Also when subsequent fund is 10X size of your last closed fund, without any change in your strategy for fund-raising, it’s bound to fail. Your marketing effort needs to match your ambitions and show you as a serious long-term player in the game.

…..I am into angel investing and I have ears on the ground, I may not need marketing!!

In Angel investing your brand to help entrepreneurs is as important as your wallet size. A well researched report carrying opinions of all entrepreneurs on challenges that they face and how you help is a typical stunt that will tilt the scale in your favor when entrepreneurs sit and chose the best VCs for them

….I am in a very local business, I may not need marketing!!

With the advent of internet, there is nothing that is absolutely local. Highly targeted marketing campaigns for a locality can do wonders for your business.

In conclusion, marketing is the only differentiator between the VCs who crop up in a boom cycle just to go down with the next bust and the ones who are in the game for long term. A sincere Marketing effort shows knowledge, commitment and capability of the VC, all of which go a long way in attracting investors and investees.

I represent Magistral Consulting that helps Private Equity, Venture Capital and Asset Management firms across the globe offshore their marketing activities for better effectiveness and lower costs. For more information, please write to me at prabhash.choudhary@magistralconsulting.com

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Softbank achieved fund-close of its latest Vision Fund of 100 billion dollars in record 8 months. This fund is dedicated towards late stage funding of tech companies. To keep things in right perspective, the amount raised by Softbank is more than the total amount invested by all of American VCs in 2017. This success comes on the back of past record of returns generated by earlier Softbank’s funds, which is in the range of 25-30% IRR.

While likes of Softbank are able to achieve fund closes of eye popping amounts with amazing alacrity, emerging managers find themselves struggling to close even their maiden funds.

We at Magistral, have been working with some of the global funds in assisting them with the fund raising efforts; and here is what we think can help emerging managers close their funds quickly:

  1. Specialized Content: If you claim to be an expert in real estate related to cannabis, and your fund aims to invest in this and generate superior returns, how much content regarding this area do you carry in your opening meetings? Is there a credible content available with Investor relations, business development and fund-raising teams? What are the legal-social aspects of investing in this? Compelling content establishes your authority right away and places you favorably with investors. Get the content and strategy regarding your fund right.
  2. Exhaustive Reach-out: Achievement of fund-close with target amount is a function of number of LP meetings a fund is able to achieve. At the same time, number of meetings is a function of LP reach-out efforts. LPs can be reached through calling, emails, references and social media. An exhaustive reach-out program ensures there is no door left to knock.
  3. Past Performance: Past performance in individual capacity of partners goes a long way in convincing investors to put their money in a GP. Pitch deck should clearly talk about realized paid up returns delivered by partners in the past. It establishes credibility of the GP.
  4. Capability to park funds: LPs not only see the capability of GP to provide handsome returns, but also the experience to handle and deploy large amount of funds. A GP capable of parking bigger checks means less hassle for LPs. In this scenario, smaller niche funds tend to miss out
  5. Events: There are hundreds of LP and GP events that take place across the globe throughout the year. Finding out the relevant event for your fund, and participating in the same has the potential of opening flood gates of investors for your fund. A slot for keynote speaker ensures some more mileage
  6. Social Media and SEO: Social Media and SEO still remains a black box for majority of GPs. These channels may not directly bring in funds, but are crucial for setting up opening meetings, getting references, supporting information and distributing content. A credible online presence helps LPs in its due diligence of GPs
  7. Over-dependence of Private Placement players: In our experience, we came across GPs who before giving out any details about their investing philosophy started talking about the brokerage; they are willing to give out for introductions. This is short-sighted. A Placement guy who will be attracted to such schemes would be short-sighted and will not benefit both the LP and GP. Even if the broker is well connected, it’s not possible for him to work with all type of GPs. It’s better to take responsibility of reaching out to LPs organically rather than depending on brokers and enticing them with ‘cuts’, which of-course would be paid from the fund that should have ideally contributed to returns to LPs. A situation where everyone is a loser.

I hope all the experience shared by us here is helpful and helps you close your maiden fund as soon as possible.

I represent Magistral Consulting, that has helped Emerging Managers in the areas of Private Equity, venture Capital, Real Estate and Infrastructure and Hedge Funds  raising their maiden funds. We have assisted GPs in all the above mentioned areas. For more information, please drop a query at prabhash.choudhary@magistralconsulting.com

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Rules of the game for online content marketing have undergone a sea change in last few years. It’s established even for B2B marketers, that their target customers are spending most of their time on internet either hooked on laptop, mobile or tablets. If you need to reach your customers, going online is the only imperative.

Though it’s obvious that internet presence and compelling content is of paramount importance for B2B marketers, reaching the top decision makers is still an Achilles’ heel for most. People at CXO levels are extremely busy and getting their attention for content requires some serious homework. Putting in some content in hope of getting top management’s eyeballs, is spray and prey technique, that in today’s world of incessant barrage of irrelevant content, is a ploy of diminishing returns.

Here are few rules that in my experience have worked wonders and have helped clients in engaging top deck in meaningful conversations:

Topic of content: Generalized content gathered from other sources of information is passé.  A report on an industry say as big as Management Consulting, is expected to draw a blank. What helps here is coming up with topics that are of immediate interest to the decision makers in the industry that you are targeting. Targeting a very specific sub-market helps.  Rather than report on ‘Management Consulting’, a report on executive search market for CXO level recruitments in a defined geographical space is far more appropriate. Ofcourse, executive search is also a subset of management consulting industry like dozens others. It helps to know your exact market and in as much details as possible.

Data, data and more data: “In god we trust, everyone else brings data”. A piece of statistic communicates in thousand ways. It establishes the credibility of the content. A top management professional would rather prefer a neat data table that tells him what he needs to do, rather than an elaborate piece of report with recommendations that gathers dust. Let him draw his own conclusions

Understand the challenges of your target: It’s a ground rule and probably oft repeated, but it’s appalling to see so many B2B marketers failing at this. The board of a family business being run in India would not be concerned about IoT interventions on assembly line, but about the ways to manage a non family member CXO, that they hired recently for salary more than they ever paid themselves. It’s important to understand what keeps a board member awake at night, before you decide to make content for them. Next obvious step is to weave content around it and dovetail your products and solutions into it.

Infographics: A texty report is still in vogue. Marketers feel more text means more information. Sadly nothing gets read. Even if it gets read, there is no chance a busy executive will read it in the details that marketer would have envisaged.  Cutting down on text, as ruthlessly as you can helps. Building on infographics to convey the same information is time consuming but well worth the effort. Any report or content that can’t be skimmed in 5 minutes is out of the window.

Once you are done with finalizing a crisp, data and infographics loaded, relevant report for your target, its distribution through online channels is the next hoop. About that in some other blog, some other time!!

Author is CEO of Magistral Consulting which has helped multiple B2B corporations in creating winning content for top management. He can be reached at prabhash.choudhary@magistralconsulting.com

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Are you a Private Equity or a Venture Capital firm that has finalized the asset with a huge manufacturing base? Then read on….

Valuing a factory or a manufacturing company can be tricky. Number oriented investment bankers are more comfortable with the valuation derived from the financial models. All the assets like land, factories, machineries, inventories, vehicles etc. are taken into account with assumptions on depreciation to arrive at a value that a manufacturing based asset deserves.

There is one thing that often gets overlooked in the financial models. That is the potential for factory to save costs or improving productivity in future. Assessing this has significant element of experience and intuition. It can have an impact on the final COGS and thus improve the bottom-line of the overall organization. An improved bottom-line that is possible in future will have a bearing on the current valuation. It also decides if the asset managers will be able to derive the value that they plan from the asset in the future.

I will detail a few tools here, that can give an experienced operations personnel, a quick and dirty guide to indicate the improvements that are possible in the operations of a manufacturing company or a factory

Productivity Improvements Studies

DILO: DILO stands for “Day in the Life Of”. It has been used for years now by productivity improvement consultants. DILO is shadowing a personnel for a whole shift/day to understand nature of all activities performed by him, and whether they are value adding or not. DILO is performed over the activities of first level supervisor in the plant. It’s not done for the people at the top and it’s not done for people at the lowest rung too. First supervisory level DILO gives a firsthand idea about the cultural DNA of the organization. It also helps zeroing on the productivity improvements that is possible. A 20% productivity improvement using improved systems is not exactly unheard of.

Management Control Systems: An effective Management Control System study charts out flow of information in the organization and the actions that are being taken on the same. Production planning processes, production control processes and production reporting processes are taken into account. All KPIs/KRAs and review mechanisms are studied too. This study should be able to show gaps in the processes and improvements possible. This can be repeated for functions of Maintenance, Quality Control, Supply Chain, R&D or any other function that has an important bearing on the final output.

 

Pit-stop studies: A pit stop study is conducted to see if the flow of material, men and information happen as they happen during a pit-stop in F1 racing. It also records all the bottlenecks for not achieving the pit stop level efficiencies. Analysis of these bottlenecks give a fair idea about the improvements possible

Bottleneck Study: Identifying a clear line of value addition itself is a task in multiple industries, but if processes are visibility and logically connected, a bottleneck study can be done to find out the bottleneck process or a bottleneck machine. Once identified it’s clear that any improvement that is done on the bottleneck process/machine improves the productivity of the whole line. We need to study the bottleneck machines/processes in further details to find out downtimes and reasons for the same. More avoidable the reasons are, more chances of improvements. A bottleneck process improvement has been able to show 10% improvements in throughput even across process-wise mature plants.

Process Maps: A simple flow of material and information exposes the gaps in processes. Material waiting for information or material waiting for other material or machines or men, all cause delays. As per the established principles of Toyota Production System and lean methodology, wastes need to be identified. Once identified, it needs to be ascertained, if these wastes are avoidable. Again, more avoidable the reasons, more chances of improvements.

Quality Processes: Reduction in quality rejected items directly adds to the throughput. Finding out the effectiveness of quality systems can point towards improvements possible due to reduction in quality rejects.

5S and other housekeeping systems: It makes the workplace clutter free. Absence or presence of these systems point towards the current processes maturity and thus improvements possible.

Cost Optimization Studies

Material Cost: Material costs most often are the highest cost bucket for a factory. There is some raw material fed at the beginning of the production line and there is output in terms of finished product at the other end. All the material that is lost in between is the dollars lost. In process industries, this is also referred as material yield. Finding out the potential to reduce this waste is guaranteed to give future direct bottom-line benefits.

Inventory Cost: In some industry cost of inventory is huge. If inventory turns are not monitored carefully, it leads to working capital being tied up in inventory. Finding out if A, B, C classifications are there and if there are inventory standards for each classification can be a starting point. In case there are standards, a quick audit of some A class materials will show potential of releasing stuck working capital back to P&L.

Procurement Costs: A quick look at procurement processes show if there is some value that can be derived from tighter procurement standards. Few things that can be looked at include, how contracts are finalized, presence of penalty clauses in contracts, contracts negotiations process, RFQ process, low cost country sourcing potential, supply chain cost reduction possibilities, mass discounts and vendor rationalization possibilities. A tighter procurement process has known to produce 10% savings in the spends related to material.

All these studies will also need to be supported by number crunching exercises. It all depends on the extent and quality of data available in the factory.

A dipstick study can be concluded in 2-3 weeks’ time for a plant that produces around 200-1000 Crore worth of stock by a team of 3-4 people. This exercise gives an input to valuation of the plant and the company. It also acts as the road-map for the management in case the asset gets acquired.

Prabhash Choudhary, CEO, Magistral Consulting.

Magistral (www.magistralconsulting.com) is a leading consulting research and analytics firm that helps PE/VC firms globally in performing operational due diligence. The author can be reached at prabhash.choudhary@magistralconsulting.com for queries.

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Procurement is an area where cost optimization strategies start to show an impact on bottom-line almost immediately. It’s one of the foremost areas, which is attacked by experienced turnaround professionals. Direct sourcing which almost decides the profit margins of the organization or even its competitive standing in the market hogs all the management attention. Indirect sourcing at the same time is complex and requires expertise that is usually not present in the organization.

For beginners, direct sourcing is the sourcing of materials that make it to the final product. For example; procurement of tires in an automobile company. Indirect sourcing is the sourcing of material or services that don’t make it to the final product. For example; office furniture or plant security services.

For direct sourcing, there is lots of attention and expertise that is available in the organization as the very survival of the organization depends on it. For indirect sourcing, there are way too many categories and its vast in scope, so organizational attention about it dwindles.

Following are some of the steps that are very relevant as first steps of reducing spend base for indirect sourcing. Please note some of it may be relevant for direct sourcing too

1. Spend Analysis: Spend Analysis, as simply put is an analysis of all your indirect spending. For a complex transnational organization, it’s a huge exercise. Similar items are booked under different names and codes in SAP system. Codes have been created recklessly over the years and at some point in time it all becomes too difficult to manage. Someone needs to rationalize the codes and put all the spends under a standard system of category nomenclature. Output has to be in the form of a Pareto chart that tells the amount and nature of biggest indirect spending.

2. Contract Renegotiations: Once biggest category of spends are identified, next step is to look for how these items are getting procured. It’s a good idea to have a look at these contracts and see how price increments over the years have been given. Has there been a technology intervention in the industry that has brought down the prices but your organization continues to pay year on year prices escalations signed years ago? It’s time to renegotiate. A smart purchaser should be able to save 10-20% simply by negotiating a contract which buys higher volumes and for longer periods of time.

3. Low Cost Country Sourcing: Some items are assumed that they will be cheaper if procured locally, but there are so many items where landed costs of items even after all import duties and taxes paid, works out cheaper than locally sourced material. Finding out these items and procuring them from a low cost manufacturing country brings in the requisite value. An experienced purchaser knows these items from the experience and attacks it effectively. In manufacturing set-ups this step itself has been known to bring 5-10% of cost savings

4. Vendor Rationalization: Having lots of vendors providing similar services and products is not a good idea. If for top category of spends, there are multiple vendors, one needs to initiate vendor rationalization process. Next step is to find out the best and/or biggest vendor, get into negotiations with them to get mass discounts as the volumes will increase. Offering a contract for longer period of times, will further bring in some more dough.

5. New Vendors: For all top categories of spends, there has to be a continuous effort of finding new and more competitive vendors. Vendors who use technology to bring down the landed cost of items should be preferred in this scheme. This requires a continuous profiling of potential vendors, who can replace existing ones. If you have onboarded vendors as and when it was required over the years, it may be time to have a strategic look at the same.

6. Vendor Industry Profiling: Vendor industry profiling brings immense value in industries where commodity prices and international supply chain play an important role. If you have monitored your vendors’ industry carefully, you would know exactly how much a vendor could be squeezed for savings. It helps to research out the cost structure of the industry beforehand. That way you get the best prices without leaving anything on the table.

 

Author: Prabhash Choudhary, CEO, Magistral Consulting

Magistral Consulting has helped multiple organizations optimize its procurement processes. To know more click www.magistralconsulting.com. Author can be reached at prabhash.choudhary@magistralconsulting.com for any queries.