00:03:40 · Solenne Niedercorn, Charlie Tafoya
[00:03:40] S1: Perfect. And when did you found your company? [00:03:43] S2: In 2016. I actually left my job on a Friday, got married on a Saturday, and started hacking away on Monday. So it was a heck of a turnaround. And my father-in-law didn't even know that I had left my job on the altar quite literally. So, yeah, it's a lot of life changes all at once. [00:03:59] S1: Good. Okay, so the listeners, there are amongst my listeners LPs and GPs. And some may have encountered challenges in their daily management, of course. But I don't have only LPs and GPs of private equity funds on the podcast. So I'm sure it's interesting for the others to shed light on the number of bottlenecks, particularly in terms of data management that they are facing on the day to day. That can have huge impact on investor relations, but also regulatory compliance. So how would you say data fragmentation, as you said, and the management of that data can pose challenges for the LPs and the GPs to maintain that unified overview of investment portfolios, but not only?
00:04:46 · Charlie Tafoya
[00:04:46] S2: Yeah, so I think the first comment I would make is that private markets are in effect at the state of public markets, or at least where they were in about, call it 1986, which is to say if you go all the way back to the '80s and think about the average experience of public company reporting, either you had to go down to a repository for filings and actually check out a filing, have literally a paper spreadsheet, do some computations, check the file back in, and then go try to do your deal. Or if you're at one of the bigger banks, maybe you had this new platform called Bloomberg or just a computer or computers in general. So all this to say that, certainly, we're beyond paper spreadsheets happily in private equity, but you're still dealing fundamentally with a lack of infrastructure around how information is distributed and consumed. You're dealing with the lack of standardization around how that information is reported and, again, interpreted. And you're still seeing evolving norms around the sharing of information as a whole. Now I think that, to be clear, that's totally appropriate. Right? I don't think that public and private practices and public and private markets should ultimately converge. I mean, there's certainly some trends that will cause a degree of convergence. But just speaking as, you know, the CEO of a a private company and former private equity investor, I do think that there's a lot of value to the way in which private equity broadly operates. Having said that, I think, you know, we are in 2024 now. There is a need for more digitalization as a whole. And as a result, you know, I think we're really seeing a lot of opportunity, obviously, as Chronograph to help move the industry forward. So all this to say, you're facing these fundamental issues, and really those are the issues that we've tried to tackle in turn in the form of SaaS applications for both LPs and GPs to again collect structure and ultimately report and consume their information, you know, taking a opinionated view of things like the data model that's required to have something that's flexible enough to address all sub strategies within private capital, industries, you know, that folks might invest in, etcetera. And then do that in a way, again, that can really provide a foundation to bring further opportunity to the asset class as a whole.
00:06:53 · Charlie Tafoya, Solenne Niedercorn
Things like providing more information that can unlock and find contribution as an asset creates, etcetera. There's many things happening in parallel and short that, again, gives me a lot of optimism that we are reaching a good place and balance for the industry as a whole relative to, again, sort of where it began, know, going back to, call it, even 2008 when obviously you saw the first normative shift, which we can get into in a bit. [00:07:17] S1: And if we focus more particularly on the reporting, there are some many, many different reporting that those LPs and GPs need to produce, particularly for their investors, so on both sides. How did you see this evolving over the years? I see it becoming more and more complex also if we add in addition to that all the reporting linked with ESG. So, if we could summarize the complexities of producing these reports, could you just give us a flavor of that complexity and explain to us how in general, those managers are tackling those problems.
00:07:56 · Charlie Tafoya
[00:07:56] S2: Certainly. Well, for a bit of quick history here, I mentioned that 2008 was sort of an inflection point. And that's true in many different forms, obviously, given the global financial crisis. But as it relates to private equity information, I would say that for the first time, LPs were really empowered to drive new levels of disclosure from GPs. Prior to this, really only the very largest funds would provide any level of true transparency at the underlying company level, meaning that the assets themselves and how they're fundamentally performing, their approaches to valuation, etcetera. More than normal simply to report your basically partnership financials and gap accounts and folks can know in effect what is the return that they're achieving. But they didn't have a very good sense of exposure and again, underlying drivers of performance. That really started to change in 2008. And I would say we were sort of in the second epoch, if you will, from that through 2020. And based on at least on our experience at Chronograph, March 2020 with COVID was really the next true inflection point in that you had a lot of folks with consumer exposures that were now suddenly having to revalue their portfolios, in many cases on a daily basis during the initial lockdowns. I mean, was just such a sense probably a free fall in that moment. And again, people really needed to understand what are the implications for our assets and exposures, And in short, those without the benefit of, in effect, structured information really found themselves without a paddle, which is to say, you know, they they really were caught in a hard place. So since 2020, I've not heard almost any investor try to argue that Excel is good enough. I think everybody broadly realizes the opportunity and benefits of having technology in place to assist with, as you noted, many of the evolving demands around data. But to the point, I would say that if you think of it as a soccer match, we're probably still in the first thirty minutes of play. We're probably at the thirty minute mark. So definitely still early, but happily, again, seeing a lot of normative shifts around, in particular, LP expectations with regard to GP data and technology competency. That's true even for first time managers. We're seeing this in DDQs.
00:10:05 · Charlie Tafoya, Solenne Niedercorn
For emerging managers, we're seeing this again really across all parts of the fundraising cycle. And now just given the broader fundraising context for GPs, which is to say it's been a difficult couple of years, I think GPs have woken up both the operational opportunity to have streamlined operations and ensure a true enterprise, if you will. But then further, it's it's really become, again, a precursor to actually going out and trying to fundraise. So happy to comment more on sort of the specifics, which is to say there's high degree of variabilities across different sub strategies, etcetera. But more thematically, we just say that, yeah, we're reaching a point now where again, people are benefiting from technology and realize the benefits of data. [00:10:48] S1: Yeah, so it's just the beginning, I believe. What role would you say advanced analytics play in improving the insight into portfolio performance? And is it something that is currently used by managers or not sufficiently in your opinion?
00:11:05 · Charlie Tafoya
[00:11:05] S2: Well, so Chronograph provides two different products, and this is in response to your question. One is for LPs, which is more analytics oriented. Because for a limited partner, the challenges are ones more of data aggregation, right? How do I take in all this information and structure in a way that gives it meaning? And then further, how do I then interpret that information in an efficient way? If I am a pension plan, for example, I may not have the human resources, the analysts and associates needed to actually process the volume of information I'm ultimately receiving. And so in short, there are probably questions I can answer with the data I hold, but I just don't have the operational capacity to address that. And so that's a good example of someone who will engage Chronograph to help them in effect get out those answers. For general partners, I would say the issue is less analytics. There's a lot of certainly very smart people that work in private equity, a lot of great people who can model. There's a lot of talented technology folks as well now who are involved in all aspects of the value creation process at private equity firms, inclusive of analytics, but also now increasingly AI applications. There, would say the challenge is one more of data availability. Do you have a process in place to actually collect data in an efficient way, again structure it and then report out to your LPs and make it otherwise for portfolio monitoring, again, a way that maximizes your own understanding of your portfolio and opportunities, again, for value creation. So I draw that distinction between LPs and GPs to say that there are different sides of the coin. GPs again need to be more focused on basically the process of gathering and creating the data that they then report out. LPs conversely are more focused on receiving that information and consuming it in an efficient way. So hopefully that answers your question. But yeah, trying to provide a bit of, again, broader context here.