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Overwhelmed at the prospect of making complicated accounting consolidations for your client?

As an accountant, it’s common for one of your clients to own multiple businesses or have numerous subsidiaries. If this is true, chances are they will need consolidated financial statements.

These statements typically include an income statement and balance sheet. Examples of companies that need consolidations include franchises, real estate investors with multiple locations, and multi-location businesses to name a few.

Consolidated financial statements are often required by banks and investors and prove crucial in estimating tax expense. Unfortunately, the process of creating these statements is often long and tedious.

How Most Accountants Make Consolidations

If you are already creating these accounting consolidations, chances are you do so in Excel. Only one form of Quickbooks (Enterprise) currently offers a built-in solution for consolidation, which means if you use QB Pro/Premier, QB Online, or Xero you have to look elsewhere for a solution to this problem (probably Excel). Even if you use Quickbooks Enterprise, there are some inconvenient issues with consolidating data:

  • The chart of accounts for each company must be identical.

  • You may have to switch your account to multi-user mode.

  • Accounts must be listed by type.

And although it may sound tempting to switch to Enterprise from QBO or Pro, don’t forget that you will lose all the benefits of being cloud-based if you switch, not to mention the price increase to do so.

Exporting reports to excel and then combining them manually is the default for most accountants. It gets the job done, but there are some pretty strong arguments against it:

  1. It’s time-consuming. You didn’t become an accountant to manually enter data into a spreadsheet. This simple task probably takes up a sizable portion of your day if you’re already creating consolidations. If you aren’t, then this is a pretty strong deterrent against it.

  2. Prone to making mistakes. Even if you’re well rested, entirely focused, and in the right environment (which is almost never the case by the way), people still make mistakes. Human error is normal and natural, not to mention that it happens to everyone, even you. Data entry is often left to lower level employees and interns, leaving you to look over their shoulder and ensure it’s correct, wasting time and resources. If you are a partner or an owner of a practice, how often should you actually be typing data into a spreadsheet?

  3. Not Scalable. Growth is the most common ambition of any business owner. You want to grow, to make more money, to have more clients, and you need help to do so. Unfortunately, without the proper tools, this simply means hiring more people, which means getting a bigger office space and more computers and onboarding and offboarding more often and a bunch of other expenses that you don’t want or need.

How to Simplify the Process and Become Indispensable

Okay, this all sounds doom and gloom, but the reality is these challenges create a unique opportunity to differentiate yourself from the herd in the changing world of accounting and bookkeeping in two simple steps.

First, implement a system that allows you to more efficiently create accounting consolidations. This system should automatically pull information without you having to enter it in manually. Ideally, this system also lets you build and manipulate reports in a simple user-friendly interface.

Malartu offers you all the tools to create consolidations without all the nagging issues you would otherwise encounter.

Next, once you’ve made these reports use your new system to become an indispensable asset to your clients.

Clients are looking for more than simple financial statements. To learn more about what your clients want from reports, check out my colleague Sean’s article on “What Your Accounting Clients Want From Business Advisory Services”.

To summarize, business owners want actionable, easy to read information that cuts right to the chase and tells them what changes they need to make to their business, how they stack up against others, and how changes they make affect their business.

By offering your clients this information, matched with your expertise in their industry, you become a trusted advisor to their firm.

The best part is, you already have all the information. Your clients trust you with their financial information, now it’s time to put that data to work.

With Malartu, you gain the capability to exhibit your expertise to your clients. To show them that you cannot be replaced by a computer, to spend time understanding their business and the challenges they face. You can do this once you no longer spend hours each month creating repetitive reports and accounting consolidations.

Now you can make the reports once and gain the freedom to look at any time period in one simple click, eliminating hours or even weeks of work. Let the system do the work for you.

You can pull in benchmark data to compare with your clients. You can create custom metrics and industry-specific KPIs to track your clients’ success.

You can show your clients that you are an indispensable, data driven, decision making advisor.

How We Helped a Client Automate their Accounting Consolidation Process

One large accountancy that we work with has a client consisting of 3 separate entities.

One is the owner or “parent company.”

The other two companies are linked via loans to each other for tax purposes.

Each month the accountant would have to spend 5-10 hours exporting the each of the respective company’s reports from QuickBooks Pro, combining them in excel, and then calculating eliminations and totals.

When we began our engagement the main goal was to be able to create a simple set of monthly statements that populate automatically and can be sent to the client’s bank and investors.

For the banks who have lent money to the companies, the consolidated format of the Income Statement and Balance Sheet are a necessity and can not be accepted in any other format.

For the investors, looking at individual statements don’t show the health of the company as a whole. They are interested in how the parent company is doing, but want an in depth breakdown of each organization separately.

We built the accounts, set up the data connection to Quickbooks Enterprise, built the statements as dashboards, and set the eliminations to calculate themselves.

In a few days, we were able to turn around the statements and eliminate this recurring monthly task from the accountant’s agenda.

Next, we used the data to create custom visualizations such as income source breakdowns as well as breakdowns for both accounts payable and accounts receivable accounts.

This accountant freed up 10 hours per month of her time, minimized the risk of human error, implemented a scalable solution, and put her firm in a position to act as a trusted advisor rather than a data-entry assistant.

That’s not all, the holding company client is now using Malartu for budget analysis and, as the organization grows, the software implementation will easily grow with it.

Talk to us about implementing this with your advisory

At Malartu, we have automated consolidations for $250k/yr family owned stores to $20mm/yr corporate subsidiaries.

When you are ready to get some time back and provide your clients with the future of accounting tools, we are ready to help.

Name * Name First Name Last Name Email Address * Phone Number * Message Thank you!
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You’ve probably been to 10 conferences where the keynote says something about how “all of your compliance work will be automated in 5 years” and “if you want your accounting firm to survive, you need to transition to business advisory services.”

It’s everywhere. It’s compelling stuff.

Whether you believe all of bookkeeping or accounting compliance will be automated in the near term or not (I don’t), by now I’m willing to bet you do understand the added value in advisory work, not just as a long-term strategy but also as a major profit center for your business.

It’s high-margin work, positions your business for long-term success and it’s actually fun. Strengthening the partnership between your company and your clients and becoming an integral part of their team is incredibly rewarding. It’s the kind of work that makes it easier to recruit new talent to your team and give you more time to spend with your family.


That said, a popular question I get from accountants looking to make the transition is around pricing advisory services vs compliance work since it’s vastly different in nature.

It’s unfamiliar territory: compliance work is typically more task-oriented and advisory tends to be a bit more subjective (although it shouldn’t be, but I’ll save that for another post).

As you’ve heard time and again, the answer is value-based pricing. It’s about pricing for perceived value of your services rather than marking up the cost to deliver them.

Moving Away From Cost-Plus Pricing and Into Value-Based Pricing

Getting the formalities out of the way, according to Investopedia, value-based pricing is a price-setting strategy where prices are set primarily on a consumers' perceived value of the product or service.

By contrast, cost-plus pricing is a pricing strategy in which costs of production influence the price. Companies that offer unique or highly valuable features or services are better positioned to take advantage of value-based pricing than are companies with commoditized products and services.

So value-based pricing focuses on setting prices high enough to maximize profits and maintain a happy customer base, it really has nothing to do with the cost needed to produce your product or service.

Trends and general sentiments about an item or service also influence pricing under this strategy.

Customer sentiment is largely influenced by your presentation. Your marketing and brand image are valuable pieces to influencing prospect and customer sentiment.

Photo by rawpixel on Unsplash

Most advisors we engage with are currently building advisory reports in Excel and delivering to their clients on a monthly basis.

The trouble with this? Perceived value is low for Excel. Excel is a free tool, everyone has it, and it’s a very manual process to create a report. There’s a perception in receiving an Excel report that a significant amount of time was put into creating it.

Excel has associated and perceived labor costs involved that the customer understands and therefore will continue pegging you to cost-plus pricing. For example, I’m paying you $150/hr to work on these reports for 4 hours, the perceived value is in the report, not the insights and direction you deliver with it.

The most important point to stress here is this:

The strategy you help set as a result of your advisory report is what your customer is paying you for. Not the report itself. You must bring this to the forefront of your marketing.

How Do You Actually Set Pricing For Business Advisory Services?

Like anything else in sales, it’s about understanding your customer’s whole situation, the problem(s) they’re experiencing, how big those problems might get if unsolved, and presenting a solution to solve it (what they’re paying you for.)

The absolute key to pricing is to develop a process that gets the client to articulate what they are trying to achieve and the impact that will have on their business (and them personally). This is referred to as SPIN selling and an age-old lesson for anyone looking to get into value-based work.

To uncover the value you’re pricing for, ask questions:

  • Situation: How did they get to this point?

  • Situation: What is really motivating the client to solve this? What is their personal goals?

  • Problem: What do they perceive the issue to be? A good trick to really drilling down and understanding the fundamental problem is asking “why” four to five times.

  • Implication: What might happen if this problem goes unsolved? Personally? Professionally?

  • Need-Payoff: How will you measure progress toward solving this goal? What KPI best describes the problem?

  • Need-Payoff: What will solving this problem mean to the client from a financial perspective?

  • Need-Payoff: How long can they survive without solving this problem?

For example you might uncover through this process that your client’s sales are going up but profitability is remaining stagnant. They want to increase profitability to match efforts of their sales team because the company is 10 years old and it’s time to start thinking about a transition plan.

You and the client have spoken about how their business will be valued based on earnings and earnings potential, that earnings growth rate needs to start ticking upward over the next 3-4 years.

Additionally, the client wants to buy a vacation home with their spouse in the shorter term so wants to take home more earnings distributions.

The both of you agree that to do that they’ll need a 10% increase in take-home distributions.

The client perceives the problem to be their overall margin, but after diving into their product mix, the problem actually appears to be a particularly low margin product line that sales team’s have been pushing harder than others. This gave the illusion of a hot product but didn’t help earnings, which isn’t aligning with the business goals.

Let’s say the goal for profitability improvement is $100,000 annually over the next 2-3 years. That’s $300,000 in value to start.

Distributions as a result of increased profitability? Another $100,000 increase over the next 3 years.

Quality time with the family at the beach as a result of increased financial position? There’s value in that too.

All said and done it wouldn’t be far-fetched to say this engagement will contribute $450,000-$500,000 in added value to the client. If you’re shooting for a 10:1 ROI, this can reasonably be a $45,000 engagement over 3 years where you could bill around $1250 per month.

Extrapolate this out to the rest of your team and client base and you’ve landed on an incredibly lucrative business.

How Do You Sustain Value-Based Pricing?

This type of discovery and pricing process works great for kicking off with advisory clients but how do you create a sustainable model with recurring advisory revenue? How do you demonstrate your ROI throughout the three year engagement and land more business with that same client later?

In the words of one of my favorite venture capitalists, Jason Lemkin: It’s all about the dashboards.

Dashboards help you continuously display the results of your work and give clients a tangible, automated tool to rely on. Moving from Excel to a dashboard tool like Malartu increases your efficiency as a firm but also greatly increases the perceived value in your advisory work.

Your ability to repeatedly prove ROI will guarantee your business for the long-term while growing your profit margin. Proved a great ROI on the first project? The next project is bigger. After all, the business is now bigger, which means the value of your work is now higher.

That’s why we work with our partners at Malartu to maintain best-practices in their client engagements through our Traction Program. Interested in learning more?

Setup your free advisory account on Malartu and start your own Traction Program with a Malartu Partner Advisor Name * Name First Name Last Name Email Address * Company Name * Client Count Phone * Phone Country (###) ### #### Thank you!  
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Advisory services are the future of accounting. From the increasing number of services becoming automated every day, to the adoption of machine learning and artificial intelligence that will continue to automate repetitive tasks in the future, you and your partners have to find a way to continue adding value to your clients to keep your business thriving.

As long as people are selling to people, accountants will have an advantage to machines in providing advisory services.

The challenge to building your advisory service portfolio is that there isn’t always a burning problem/solution set from your client. From the outset, most of your clients aren’t going to ask you if they can pay you to consult and grow their business so it’s up to you to understand where you can add value and present this value at the best possible time.

Like anything in sales, you must identify what your client needs and how you’re uniquely positioned to fulfill those needs.

What are their business goals? What do they require to reach those goals? Why is your team the one to enable them to accomplish these goals?

After answering these questions, lean on the following attributes you have at your firm to land new business.

Niche Expertise

Is there a particular industry you feel you understand better than most of your peers?  Do your partners have specific expertise in their own niche industries? Your clients know this and can see it, no matter the reason they engage. Don’t try and be something you’re not, steer into your field of expertise and gobble up that vertical.

In almost every fast-growing accounting and consulting firm we speak to, their client base is made up of a handful of niche industries. The more narrow you can focus particular services, the better.

Think about it from the client’s perspective: if I’m choosing between two different firms with seemingly similar services, am I going to go with the one who has 20 years experience in working and advising my exact type of business? Or the one who’s just offering a better price?

You don’t want to compete on price, you want to compete on fit. Leveraging deep expertise in a given field will enable you to win business based on fit, time and again.

Take Lanny Bynum, for example, a founding partner at Burns & Bynum:

“We feel that real world and relevant business experience is desired and needed by most small and medium size companies that are driven internally to succeed.  Having this type of experience in our firm definitely has contributed to not only obtaining new clients [in those industries], but also maintaining strong long-term relationships.”

More Advice Than What Comes From A P&L

“It is imperative that key management metrics, not included in a normal P&L, be analyzed by any business” says Bynum.

You can’t grow a business from just a profit and loss statement or balance sheet, yet many accountants try and sell just P&L ratios as advisory services.

While there is much to monitor on the P&L at a high level, it’s important to understand what factors drive those financial outcomes. What can a client improve on a daily, weekly, monthly basis to improve those ratios?

“Some particularly important metrics are for cash flow, sales mix, turnover on sales and inventory, and return on invested assets,” says Bynum.


Being the most deeply ingrained third-party involved with your client’s business uniquely positions you to offer helpful advice in growing their business. Not to mention, if you’re building your client base in a niche, you’ve seen tens, hundreds, or thousands of businesses just like your client’s go through similar issues and implement specific solutions to solve them.

Help Developing Their Business

By the nature of your job as an accountant or advisor, how many other businesses and people do you think you interface with on a daily basis? Probably more than the average service provider.

Use this to your advantage. If your client is running a real business solving a real need, chances are they can help someone in your network do something better. Make the introduction, it goes so much further than you’d think. (Side Note: For the love of all things good and holy, use the double opt-in when making introductions)

*Not* a good email via CBinsights

You’d be surprised how many firms stop at their particular service offering. If given the choice between a firm who sends a helpful introduction to new leads every now and then and one I interface with only for business reasons, I’ll go with the one who helps my business grow 10/10 times (even if it’s marginal).

A Way to Monitor Progress
“If you can’t measure it, you can’t improve it. ”
— Peter Drucker

If you’re going to help your clients develop a plan to grow and manage their business, you need to be able to demonstrate a deep understanding of what they have going on now.

That means reports, analytics, dashboards, anything you can provide that distill all the figures swirling around their business and their head into a handful of hyper-important, hyper-specific things to focus on.

“We customize performance reports for clients depending on their industry, their particular needs, and most importantly, ones they can understand and manage from” adds Bynum.

Speaking of performance reports, how are you actually presenting this information? What is the focal point of discussion and the data that the client can reference after your advisory conversations? Anything you can provide that clients can monitor outside of your weekly, monthly, or quarterly meetings will make your advisory services that much more valuable.

Check out our automated data source integrations here

Proven ROI

A subsequent result of providing a tool for monitoring business performance and progress is your client’s ability to monitor their return on investing in your advisory services. They should be able to specifically point to a growth in their business based on the relationship you have formed.

Ultimately, this is how you build a high-margin advisory business for yourself and reach your own personal goals.

Accountability + Transparency = Revenue

I was on a call the other day with a representative from Google Adwords. Obviously they’re trying to sell me, a small business owner, on buying advertising on their platform. He ran a few quick numbers from their database and told me that people who own our particular niche of search traffic are paying, on average, $5,000/mo.

How many businesses can garner numbers like that in the SMB market? How many businesses can convince SMB clients to shell out $60,000 per year of their limited funds and put it toward one product or service?

Ones who clearly demonstrate return on each dollar spent.

Business owners spend $$ on Adwords only because Google can clearly demonstrate the $$$$ in revenue generated from those advertisements.

If you can accomplish the same for your advisory services, the sky’s the limit. Remember, you don’t want to compete on price. Your clients will never worry about your prices vs a competing firm’s if you give them the ability to clearly demonstrate ROI on your service.

Google revenue breakdown

It’s All About the Data

So we’ve hit the basics: start providing advisory services in specific niche industries, go deeper than what can be found on an income statement, help your clients grow their business, and give them a way to measure progress toward their goals and demonstrate your ROI.

But how do you optimize your time spent on these advisory services? There are costs involved in generating custom performance reports like Lanny Bynum mentioned.

Cut these costs by automating repeatable tasks like data entry. Our mission at Malartu is to virtually eliminate the time it takes to go from accounting data to strategic, meaningful discussions about strengthening a business.

Dashboards are just dashboards. They bring the metrics behind your business to the forefront, but they’re not actionable. Your advisory services are the actionable piece, let us take care of the report generation and help you get back to advising.

Talk to Us About Creating Custom, Automated Dashboards and Reports for Your Client Base Today.  Name * Name First Name Last Name Firm Name Email Address * Phone Phone (###) ### #### Thank you!    
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Too much money, too few deals

The private market continues to turn heads in the face of abnormal market conditions. There is an excess of undeployed capital filling GP pockets, or dry powder, estimated at $1.8 trillion according to a review done by McKinsey, while available dealflow has been dropping continually since 2014. The resource hike and deal slump have cultivated competitive private equity deal sourcing.

Investors have confidence

While that 1.8 trillion could seem quite daunting for LPs expecting a return, it sheds light on the confidence that investors have in the rapidly evolving asset class. There are a few things that GPs can do to optimize the portion of that dry powder being deployed with their fund, and avoiding the steep purchase prices that come with too much money chasing too few deals.

Partnering with investment banks allows the GP  to increase dealflow in competitive markets; however, this partnership comes at a lofty cost to the buy-side. Since intermediaries are moderating the limited supply of promising deals, their cut of the acquisition process can mean big costs for a fund. Good for intermediaries, bad for GPs.

A good proprietary deal is like a diamond in the rough

Consider the diamond industry. There is an infrastructure put in place by industry leaders that control the supply of diamonds from source to consumer. This intentional bottleneck heavily influences the price that the consumer pays, by creating perceived scarcity. While intermediaries can bring an excellent opportunity to the table with minimal effort by the buyer, having the ability to generate proprietary PE dealflow internally can significantly impact the performance of a fund.

It doesn’t have to be this way

According to new academic research from Harvard Business School and Chicago’s Booth School of Business, about 56% of closed deals have the potential to be self-generated. If a fund were to establish the necessary business development processes and tools to attract primary sellers, they could obtain about 56% of their deals without having to work with intermediaries. This means significantly larger profit margins for investors and the firm.

The value is in creating non-consensus deal flow       

Theoretically, deals are priced cheaper because handshake PE dealflow is regularly traded at significantly lower multiples compared to auction dealflow. The firm can get ahead of the game without entering bidding wars with competitors.  

The maximum value is created by seeing opportunities that the rest of the industry has not. This can enable the firm to develop a unique competitive edge against competitors that are sourcing the same type of deals from the same auctions. Think about the attention that a sharp handmade leather briefcase commands when compared to a standard bag from Office Depot. The latter is much less unique and can be acquired by anyone interested, while the first requires expertise and connections to get ahold of. Deal trades can be considered in a similar respect. Best practices for strategic growth should be identified in order to support the PE dealflow transaction.

“Business development must be strategic, credible, and measurable.”
— Axial Strategy is deeper than your neighbor’s investment thesis

Before a firm begins to actively search for prospective investments, identifying desired company characteristics to define what type of acquisition the firm is looking to make is essential. Most advice coming from industry leaders details the importance of identifying a firm's “sweet spot.”

“Variables such as the private equity firm’s geographic footprint, target ownership, the type of control it seeks to exert and the primary investment thesis,” Bain Consulting experts concluded in their Forbes article. “Our analysis has found that deals within a firm’s sweet spot consistently and significantly outperform opportunistic deals that stray from it.”

Probably don’t need to hire Bain to tell you that, right?

You’ll have to dig deeper

While you do need to find the sweetspot, it’s simply is not enough to define your sweetspot by geography and investment types. That’s too broad a swatch. Looking deep within the high performers in your portfolio, the lower performers, gathering specific data points that may correlate to success vs failure can describe a much more specific and valuable sweetspot. You can then work with that information and modern technology to go find new deals. Why spray and pray? If you have the capacity to call on 1000 companies per year, might as well optimize your hit rate for companies that fit your sweet spot.

With too much money going after too few deals, you have to be deliberate about the ones you chase. Identifying a list of attributes for high-performers based on your experience minimizes the tendency to become distracted by out-of-scope deals that might not ideally fit the firm. The “sweet spot” that many advisors are recommending simply scratches the surface of characteristics that need to be specified.

The more specific factors you use to identify your “sweet spot,” the more effective your business development efforts will be. Business development is an investment in and of itself, you must maximize your returns like anything else.

A firm-wide culture of business development

Before the search extends beyond your office, all business development efforts must be approved and supported by upper management. Without upper management support, the boots on the ground staff doing the day to day work does not have the proper guidance and encouragement in order to reap the benefits of intermediary avoidance, support from all members of the fund is required.

Bill Tobia at LLR Partners said it well when discussing the critical role of CFOs throughout the firm,

“It’s a virtuous circle: the more you can help people, the more they’ll want you to be involved. The more you’re involved, the more you’ll learn about the organization. The more you know, the more you can apply that knowledge to the task of creating a more resilient and profitable company.”

What is not measured cannot be improved

Keeping track of success and challenges throughout the business development process can make or break your attempt to generate proprietary dealflow. What is not measured cannot be improved, and when you are revamping processes to achieve a leaner, more profitable business development operation, continual iteration is pertinent. To measure the activities for effective operation, investors are dependant on data from CRMs, and its aggregation on platforms like Malartu.

What first impression does your firm leave?

What they say about first impressions is true across many fronts, including company seller and GP firm interactions. In a conversation with Kristy DelMuto of LLR Partners, we discussed how marketing techniques that define the face of the fund have become increasingly important within the PE space.

“If your fund wants to differentiate itself in the increasingly competitive PE industry, PE websites can no longer be hastily designed as an afterthought. Maintaining and growing your digital user base and engagement is a continuous effort, not something that you do once and never come back to again. Many companies have grown their digital base by shifting their marketing towards an inbound marketing strategy.”

To learn more about the value that a revamped marketing strategy brought to LLR Partners, take a look here.

Transforming your firm into a proprietary dealflow machine requires a multi-pronged approach to business development.

Generating the right content paired with effective distribution ensures that the content you make reaches your audience. By leveraging paid ads you can beat the competition and reach your customer first.  Strategic cold calling gets the important conversations started, and relationship building develops increases trust. Conferences and platform acquisitions help to give the firm a face and expand your network. Social media monitoring can be used to spot companies that are ready to sell before traditional discovery methods might reveal.

When executed properly, the variety of tools work together to draw in the right companies that are serious about making a deal with the firm.

So how can you transform into a proprietary deal machine?In our next post, we will share a modern approach to setting up dialers and the best strategies to employ for reaching the right companies and maximizing your hit percentage.
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Identifying where your firm stands on its path to becoming data driven can be more difficult than you might think. In a previous post, Malartu has outlined the four step process required for becoming data driven, here. Without breaking down the structure step by step and aligning your current practices with each stage of the MDMM, it is easy to overestimate the quality of your existing data aggregation processes. We regularly encounter firms that believe they are data driven, when in reality, they have yet to achieve data awareness.

What does it look like to lack data awareness?

Imagine this. You, the managing partner of an asset management firm, are sitting at your desk and get a request from an LP for information detailing the past 5 years of Q1 financial data for a specific company. Sure, this doesn’t happen often (or ever for some), but what if it did? Would you be prepared? You’ll probably send the request on to your analyst and hope for the best.

The analyst receives the request and puts their game face on. As they enter into the daunting and dusty DropBox of data from years past they quietly curse the name of the LP that asked for such old information.

On the hunt for data, the analyst successfully finds the requested spreadsheet from 2015, 2014, 2012, and 2011. But, where on earth is the spreadsheet from 2013? It can not be found in the chronological succession of the other four documents.

After hours of sleuthing skills that even Sherlock Holmes would envy, the analyst discovers that three years ago when the data for 2013 was stored in DropBox, there was a fat fingering error, and the elusive document at hand was incorrectly named 201W.

It shouldn’t be that hard

Let's move back to your desk, the managing director. It has now been 2 days since you made your data request. Meanwhile, the LP is wondering what on earth is taking so long to get a simple report, questioning your ability to run a tight ship. You are six feet deep in frustration because you know this isn’t a hard question to answer. It’s not why this LP invested in the first place. But it’s making you look bad nonetheless.

Now that the analyst has all 5 years of spreadsheet data retrieved from dropbox, it is time to pull for the specific metrics that the boss man/woman asked for. Once again, the hunt ensues. In cell D:564-569 the analyst strikes gold, the financial metrics from Q1. After going into the other 4 spreadsheets, pulling the correct numbers, and aggregating the information into another spreadsheet: Q1 Financial Data From The Depths of Hail, the report is ready for the boss. Maybe not. How about Q1: Financial Data from 2011-2015. Alright, ready to be sent.

You, the managing director, have your data from the analyst. Now, all you need to do is send it to your investor relations team to generate the report with comprehendable charts and tables. At this point, there is a hot debate about using mustard or sunshine yellow for the pie charts as opposed to skyline blue. The report design process takes another day.

Twenty-six employee work hours later, you have the Q1 2011-2015 data prepared. It is sent to the LP, and your typical day resumes.

Until tomorrow.

When you need to get operational metrics from 13 of your portfolio companies aggregated for your new operating partner.

Bringing your firm into the modern age

This series of events is likely relatable for you and your employees. Accepted data aggregation practices within private equity are dated and cumbersome. Aligning your firm with stage one, data awareness, of the MDMM is the first step in breaking the free from the restraints described.

In being data aware, two goals must be achieved. First, a central location must be selected to organize existing data. Secondly, the data that is portfolio operator relevant, both internally and externally, must be identified.

Sifting through years of data can seem like a daunting task. One that you might be able to write off as not worth the effort when compared with how much you’re paying the person who would end up doing it. Before jumping to any conclusions, consider this: leveraging a tool powered by machine vision like the Malartu Reader. It turns any data table within an Excel file, PDF, PNG, or JPG into workable data within the Malartu system (or a csv file with our free tool). Financial statements, quarterly reports, budgets, and pitch decks can be securely sent to Malartu’s cloud platform, where the data is available to your team, securely, anywhere in the world.

In simpler terms, The Reader is used to turn something like this: 

 

 

and turn it into a workable CSV like this:

 

Time, money, and risk of error are all optimized by reducing the fat fingering danger of data entry. Just upload and review the document for corrections. Pretty simple.

Having new tech available for use in updating data aggregation policy can increase the competitive advantage of your firm. However, the true value that this tech has to offer can only be realized when there are governance structures in place to encourage policy adoption. The tech paired with optimal governance structures offers the perfect one-two punch for landing into stage two of the MDMM, data proficiency, which we’ll discuss in a later post.

Data Maturity is a Process

There is a lot that your firm has to gain from becoming data mature. We hope that by breaking down common challenges associated with working through stage one of the MDMM, you feel more prepared to take your firm on the journey to being data driven. If you have any questions or would like help identifying where you are currently, reach out. We are excited and ready to help you become data driven.

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Malartu by Sean Steigerwald - 1y ago

A data maturity model is a structure used to pinpoint where an organization currently stands on their path to becoming data driven. Data maturity models are helpful in outlining the steps required to extracting maximum value from the data available to your organization while communicating that vision effectively to your team.

To better communicate how we think about creating value through data within an investment group, we have developed the Malartu Data Maturity Model (MDMM). The goal of the MDMM is three-fold:

  • To provide a simple assessment tool for where your firm currently sits

  • To guide milestones for implementing the Malartu data platform

  • To avoid pitfalls in establishing data capabilities at your firm

The MDMM is derived from the Dell data maturity model and optimized for the private market investment firm. Resourceful firms like Dell apply analytics to understand correlations and connections within their portfolio operation, due diligence, or other reporting and arrive at better, faster, decisions.

“Successful data initiatives are about answering business questions and delivering value.”
— Teresa de Onis, Dell

To get to the point of being truly data driven, your firm needs to know where you’ve been and where you currently stand in your path to data maturity. It’s important to follow this model because trust is built along this path - it is impossible to make important strategic decisions based on data without trust that your data and systems are reliable.

The Malartu Data Maturity Model consists of four stages:
  • Data Aware: Your data is organized in one place and there is a system in place to continue this aggregation

  • Data Proficient: You have identified taxonomies and metadata to categorize data in meaningful ways

  • Data Intelligent: You can do more than than pinpoint historical trends, you can combine granular sources and begin to predict future outcomes

  • Data Driven: Your business revolves around data, you can predict future outcomes and prescribe strategic initiatives.

 

Stage 1: Becoming Data Aware

Becoming data aware is the first step to harnessing the power of your data. Before the first stage of the MDMM, an employee of the firm likely spends more time looking for a piece of information than analyzing it. The hunt that ensues while searching for information wastes your employees time, your time, and inherently your ability to make critical decisions that can benefit the firm. There is minimal trust in the reports available to firms that have not achieved data awareness because of systematic flaws that favor human error and data inconsistencies.

Partners in stage one of the data maturity model often find themselves asking associates or analysts questions like, "What was revenue in Q4 of last year for portfolio company X?" While this information is probably attainable, it may take hours to arrive at the answer.

To move forward and become data aware, two goals must be achieved.

  • Establish a central location to organize existing data

  • Identify the data sources relevant to portfolio operators, both internally and externally.

The Malartu Document Reader turns any data table within an Excel file, PDF, PNG, or JPG into workable data within the Malartu system (or a csv file with our free tool). Financial statements, quarterly reports, budgets, and pitch decks can be securely sent to Malartu’s cloud platform, where the data is available to your team, securely, anywhere in the world.

Becoming data mature is not just a technological shift, but also a cultural shift. In stage one of the maturity model, it it is essential to review governance structures in place that confirm your firm is getting the metrics needed from each company to make basic strategic decisions.

The Malartu Reader

Harness the power of Malartu and Google Cloud Vision to transform any data table within a PDF, PNG, or JPG into a workable CSV table.

    TRY THE DOCUMENT READER FOR FREE Step 2: Becoming Data Proficient

Firms at stage two identify taxonomies and metadata that help categorize and organize data in meaningful ways. Furthering the cultural shift necessary for achieving data maturity, stage two firms begin building trust in their data systems by understanding where data is coming from, how metrics are calculated, and how to find answers to strategic questions efficiently.

Firms leveraging Malartu become data proficient by organizing their portfolio and aggregate data in custom dashboards and reports. Dashboards consist of custom calculations and visualizations that can include anything from financial ratios to custom models developed by a firm.

The ability to quickly toggle visualizations and data display periods is particularly important to becoming data proficient because it allows for on-demand analysis. For example, the ability to add context to a weekly meeting by quickly comparing Company X’ budget vs actual for last quarter or chart a revenue comparison to that of a similar portfolio company over the last three years.

 Stage 3: Becoming Data Intelligent

At this stage your data is organized, accessible by decision makers, and you have the ability to quickly answer strategic decisions based on historical data.

Data intelligence requires going beyond historical analysis and moving toward predictive analysis. At this stage predicting market growth and customer demand becomes easier because we have a thorough understanding of what has lead to this demand in the past.

With historical data aggregated and organized, stage 3 funds begin to ask themselves what is missing to make the most informed decision. Based on this company’s operation, what do we need to dive into deeper to make the best decisions? Data from a CRM to measure sales efficiency? ESG-related initiatives to make sure we’re being effective? Data from the ERP system to manage inventory costs?

Firms who are on their way to being data intelligent leverage Malartu to connect directly to data sources so that they may automate reporting and capture data at a granular level. To inform even the simplest predictive models, a firm needs enough data points to achieve real significance. Often this involves more data aggregation than what is cost effective for analysts to do manually. The Malartu data platform leverages native API integrations to pull granular historical data sets from almost any system and continue to automate this reporting in the future.

With this granular data being piped into Malartu, a firm can begin to build out more complex models that begin to leverage predictive analytics, whether through in-house models or newer, more powerful machine learning algorithms.

 Stage 4: Becoming Data Driven

Firms that are data driven make no decision without data. Their entire model revolves around data being freely available, trusted, and relevant. At stage four, firms have developed a system to aggregate, organize, and analyze a plentiful amount of data and can begin thinking about how they might use this data to achieve prescriptive analysis.

While the most difficult analysis to achieve, prescriptive analytics in private market investing can be described as more quickly arriving at a strategic initiative based on what you think will happen in the future. Inherently, a firm cannot reach stage 4 or produce prescriptive analytics without first establishing descriptive analytics (stage 1 and 2) and predictive analytics (stage 3). Prescriptive analysis takes your firm further by not only describing what might happen, but actions you can take to benefit from these changes, and what might happen from making changes.

An example of how Malartu can help your first become data driven and begin to think about prescriptive analytics is to leverage Malartu machine learning partnerships to analyze data you have aggregated and organized through the Malartu platform to arrive at prescriptions like, “Based on comparing data uncovered in due-diligence to the performance of our portfolio, we should pass on this company” or “Company A should increase R&D spend relative to what we’ve seen in top-performing company data sets.”

While no model is infallible, achieving stage four data maturity is an immense competitive advantage to other firms, and one we are excited to help our customers realize.

 Why Malartu?

When thinking about a data platform for your fund there are a number of important factors to consider including aggregation, visualization, security, and interoperability. Here are a few factors that put Malartu in a league of our own:

A true Technological Advantage

Unlike other programs, our platform doesn’t rely on humans to enter data manually on behalf of your firm. Shifting data aggregation from your team of analysts to an outsourced team of analysts doesn’t effectively mitigate the risk of human error, so we have built a true technological advantage for data aggregation by leveraging deep learning and machine vision to automate data transposition and data entry.

Some competing platforms aggregate data by creating standard financial reports that are implemented at each portfolio company. This process passes the burden of your firm’s data aggregation down to portfolio companies. If you have ever had this conversation with a controller or CFO at a top-performing portfolio company, you know that this is not an easy obstacle to overcome. Additionally, this approach does not bring efficiency to aggregation which prevents a user from enriching existing reports with supporting data.

Our document parsing technology can read, extract, and organize the data found in your portfolio’s existing reports so that portfolio executives can continue running their business how they see fit. This approach allows us to quickly aggregate historical data and implement a more sophisticated level of data aggregation into more areas of your operation like due-diligence, creating a massive proprietary data set for your firm to leverage for comps, benchmarking, and predictive analytics.

Data Aggregation and Reporting Flexibility

Every team has a nuanced way of viewing data, there is no standard portfolio review across two different operations teams and there are typically unique key metrics to different industry focuses. Malartu’s data aggregation process and bespoke visualization features allow firms to completely customize the data they aggregate from portfolio company to portfolio company as well as the way they report at an aggregate fund level.

 

This reporting flexibility promotes the aggregation and reporting of non-financial data like sales, operations, and ESG data. Aggregating and analyzing this data is imperative to becoming data driven since this data tells the story behind financial outcomes.

Achieving Data Maturity

We didn’t just build Malartu to improve on your current processes, we built our platform to transform our customers into data driven value creators. Financial services and technology is often an antiquated business, many platforms stop at data awareness. Between our superior aggregation and reporting capabilities to our more advanced technical partnerships, Malartu is the only platform that can truly take you from where you are today to where you want to be as a data driven organization.

Contact our team to learn more

Becoming a data driven organization is a process. Contact our team to discuss how you can leverage the Malartu data platform and Malartu Data Maturity Model to bring your organization to the next level.

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Gone are the days of satisfying an LP report with high-level financial reports on portfolio companies, if not paired with a report that identifies how that investment brought about ESG related benefit as well. If your firm isn’t feeling the pressure from LPs to implement ESG initiatives, it is likely coming soon (and for good reason). For better or for worse, the bottom line has turned into the triple bottom line, making life as a portfolio manager more challenging.

Considering implementing an ESG strategy at your private equity firm might leave you feeling like you’re standing at the bottom of a mountain looking up. The challenges that must be overcome to reach the top of that uphill battle can be overwhelming. Malartu got in touch with asset management experts, research development professionals, and business consultants to wade through challenges regarding ESG that asset management staff might face.

Four common objections to ESG are:
  • I don't believe the hype.
  • Financial materiality is difficult to track and hard to prove.
  • My current practices, without effective ESG considerations, are working just fine.
  • I do not know where to begin.
Is ESG policy all hype?

So you don’t believe the hype behind ESG? That makes some sense, as the reputation of ESG within PE has taken a few hits over the years. From the time that ESG initiatives went mainstream, its supporters have had to work overtime to convey the legitimacy behind the movement. The overwhelming use of buzzwords and green clip art has resulted in widespread skepticism among the LPs and portfolio companies in which ESG could benefit. Too frequently LPs watch PE firms adopt ESG policy, but never thoroughly implement the protocol in day to day decision to realize true value.

It is becoming more difficult to greenwash. Natasha Buckley of the UN-backed Principles for Responsible Investment discussed a program overhaul on the industry-leading ESG and RI reporting platform that they have developed. PRI requires that all of their signatories annually submit a questionnaire style report detailing responsible investment strategies. Current regulation states that there are no minimum requirements that must be met in order to qualify as a signatory. Come January of 2019, signatory standards will be implemented. PRI will take a look at the information being disclosed and offer resources and solutions to integrate ESG strategies effectively.

If no progress is shown after an extensive effort by PRI to improve the firm, they will be dropped from the signatory list. In other words, those using PRI to check the ESG box will soon be pushed to legitimize their strategy. The greenwashers will not be able to keep up their game for much longer. Increased data transparency with regulated reporting blows the final whistle.

$59 trillion for financial materiality.

Since ESG credibility has improved, the assets managed responsibly has dramatically increased since 2014. The Forum for Sustainable and Responsible Investment concluded that sustainable investing growth jumped an impressive 33% throughout a two-year span. That figure is only going to continue to rise as the millennial population, more concerned with responsible investment than any generation prior, is projected to inherit $59 trillion by 2060.

Millenials are well informed on matters of sustainability. They have been raised in an era of readily available information detailing the dangers that stem from not paying attention to the importance of sustainable and social responsibility. The “oops I didn’t know that was bad” excuse simply does not work for this crowd. Investments are expected to have both financial and intrinsic benefits. Implementing effective ESG principles will enable asset managers to satisfy future stakeholders, and obtain a cut of that $59 trillion.

“The trend in the market seems clear. Asset class after asset class has been added in terms of ESG considerations. Now we can see increased interest and commitment in the private equity sphere, although much remains to be done.”

Sixth Swedish National Pension Fund – AP6, Sweden

Tracking the value behind ESG can be hard.  

The link between ESG strategy and value creation is tough to track. Since the process is not standardized, most PE firms don’t know where to begin when it comes to ESG indicators. These indicators vary by sector. For example, the ESG report for an oil company should look very different than a report for a software company. “LPs do not have uniform data requests and reporting templates, if at all,” shares Silva Dezelan of Robeco Private Equity. Identifying what is relevant for an ESG report that relays value requires pointed data collection.

ESG Specialists and consultants can offer insight to help establish the reporting framework that works best with your portfolio by identifying the metrics that matter most.

Less than 15% of PE houses calculate the value they create through ESG activity, according to PwC. It is hard to attribute value that an initiative generates without crunching the numbers to analyze the output.

“It is about materiality,” shares Andres Van der Linden, ESG Specialist of Triple Jump. ‘To break into that market you have to prove that sustainability metrics don't take away from that bottom line but can even improve it.” To ensure that these calculations are made, having strategy support from the finance department is critical.

The industry has evolved.

A distinct generational gap is separating the world of private equity into two groups: Those who are open to updating procedure and policy, and those who are rigid with traditional practices. Again, understanding the millennial influence on private equity can be a game changer in your firm's ability to remain successful in the coming years. The world in which business is done is evolving. Stagnant approaches, specifically in regards to environmental, social, and governance policies will become the abnormality.

Remember car phones?  

Think back to the late 90’s. You had your car phone and were more than satisfied with your ability to communicate with people whenever and wherever needed. The idea of having a mobile phone on hand at all times seemed to be extravagant and frivolous. However, the world around you was rapidly changing, and within a couple of years baseline expectations for communication evolved. Everyone had a cell phone. Whoever was not accessible lagged behind and lost some competitive advantage.

You accepted the societal shift and hopped on board with the growing trend by purchasing a cell phone. If you had not, you could have been left in the dust. Tethered to your 3-pound car phone because you had an established method for communication and it worked just fine.

Replace the car phone with your existing investment policy, and the mobile cell phone is ESG strategy implementation. You probably already have an effective system that generates a return for your investors. It is proven and efficient. Making adjustments could seem unattractive because it would take a lot of effort, resources, time.

Identifying challenges that come with updating the deeply rooted financial system is the first step in creating an agenda for improvement. “The biggest financial system, they have this machine running. Changing the power on Wall Street is incredibly difficult,” stated Andres Van der Linden. You acknowledged that the world was taking a step into a new era of communication with mobile cell phones. Now it is time to acknowledge that traditional private equity practices need a facelift to meet the needs of a quickly evolving stakeholder pool.

Successful ESG strategy implementation falls on the GP, and a lot of people are working to make the shift simpler. Developmental organizations, consultants, and industry pioneers are sharing their stories so that the success can be replicated.

Just begin somewhere.

PRI regularly updates their “how-to” resources available for download on their website. Familiarizing yourself with these private equity specific guides can aid in identifying the best plan of action for ESG strategy at your firm. INSEAD has put together a comprehensive summary that takes a look at eleven different asset management firms with a successful ESG strategy. SASB has a library of materials outlining ESG integration into the investment decision-making process.

78% of asset owners, managers, and consultants agree that responsible investing is of growing importance according to a survey done by Chartered Alternative Investment Analyst Association. By identifying and challenging a few of the objections that experts say they regularly encounter from GPs, we hope to move that 78% closer to 100%.

Start talking with our team to get the right ESG reporting conversations going at your firm.

Implementing the ideal ESG strategy that adds value to a portfolio is the first step towards generating excellent reports. Reliable, relevant data that demonstrating financial materiality to LPs and companies is the fuel that makes those strategies sustainable, and securing your future in private equity.

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ESG initiative implementations and ESG reporting are fast-growing trends in private equity. The demand for gathering real data on ESG initiatives in PE portfolio companies is growing stronger within the global limited partner base. Historically, this demand has been larger in Europe than in the US, but we’re starting to see real growth and adoption in the US markets.

“[ESG] has advanced more quickly in Europe than in the US. The Europeans have made it a greater priority in terms of hearing from their GP’s and portfolio companies about ESG policies,” Emily Mendell of ILPA explains, “In the US, we are moving in that direction as well. When you look at the type of information LP’s are requesting,  5-8 years ago there were hardly any ESG-related questions in DDQs. Now, most LP’s have significant sections on ESG policies and how fund managers monitor ESG at portfolio companies”

What Caused the Shift?

For many funds the shift at the portfolio and fund level was brought about by LP demand. As LP’s become more savvy to private equity, the demand to see not just return data but sustainability has grown much like we’ve seen in public equities.

“There [is] an obvious alignment between responsible investment and private equity - you have a lot more influence at the company and the LP has influence at the fundraising stage. So when you look at the asset/investor relationship you do have that influence,” explains Natasha Buckley of UNPRI, “It’s a lot about engaging operations teams at companies and being in a position where you can affect that change. This coincides with a push from LP’s for more transparency on what’s happening at the company level.”

Signatories by country from the PRI Annual Report 2017


Data gathered from public equity ESG studies shows that investors who invest based on material ESG factors outperform those that don’t. While much of the data is based on available information from public companies, the trend is promising for private equity and LP’s have taken notice.

In “The Financial and Societal Benefits of ESG Integration: Focus on Materiality,” George Serafeim and colleagues at Harvard Business School found that firms making investment in material ESG issues outperformed peers in terms of profit margin growth. The issue, of course, is that ESG information is difficult to obtain. Theoretically, investors who accurately understand ESG implications and make investment decisions accordingly should be able to recognize alpha as stock prices eventually adjust.

Realizing the Potential

Firms like Arabesque are on a mission to prove ESG factors generate alpha by incorporating big data and machine learning into quantitative, sustainable investing, with tools like S-Ray.

Intentional Endowments, a network that supports colleges, universities, and other mission-driven tax-exempt organization in aligning their endowment investment practices with their mission, values, and sustainability goals, published a study titled, “The Business Case for ESG” back in 2016. Intentional Endowments regularly reached out to investment managers about whether they are PRI signatories, if they’re implementing ESG policies, and what affect those policies have on their investments.

Fund managers like Valdur Jaht of Avaron place equal weight on ESG factors as other investment factors.

“In our investment process ESG issues have the same weight in decision-making as other conventional things that investment managers analyze.”

The trouble with using ESG as a factor in investments is the accessibility of data. Tools like S-Ray have moved the possibilities forward in public equities but as you move into small-cap listed equities or private equity, hard data on sustainability and ESG efforts becomes increasingly difficult to gather and analyze. Historically, gathering this information takes added resources and personnel within a fund.

Allocating the added resources needed to capture and analyze ESG data in a private equity portfolio requires a full understanding of the benefit and often, a change in perspective.

ESG Is More Than Downside Protection, It’s Upside Potential

Many funds collect and report on ESG data because at some point in their firm’s lifetime an LP asked them to. For ESG initiatives to truly have an impact, there needs to be a will to tie data to results, and understand the upside potential in running a sustainable business, not just the downside protection.


Aleem Remtula, Managing Director at Developing World Markets, recognized, 

“I often hear issues such as ‘cyber-security’ and ‘data privacy’ discussed as ESG considerations. I don’t agree with this view. Companies should manage these issue proactively as part of their general responsibility to stakeholders and there is obvious reputational and financial downside from not doing so – but I see this as an example of a firm protecting its downside vs. promoting ESG considerations to drive value creation and upside.”

Andreas Feiner, Head of ESG Research and Advisory at Arabesque adds,

“Investors’ understanding of ESG has changed markedly over recent years, and awareness has grown regarding its link to alpha. ESG is about risk management and the performance of firms on environment, social, and governance risks. It’s about how well they run their business, not what their business is.”

Brett Hickey, founder and CEO at Star Mountain Capital, regularly sees the value of ESG initiatives and reporting in higher exit multiples:

“Part of building value is increasing [a company’s] governance and reporting so it can be ‘middle market ready’ and be acquired by a middle market PE firm or a strategic. Strong ESG initiatives often translate to higher multiples in that respect.”

A BCG analysis of 300+ companies published in October of 2017 found that businesses that perform well in environmental, social, and governance areas can improve their valuations and margins. This means ESG has tremendous upside potential for PE fund managers. Recognizing strong ESG initiatives with real data allows fund managers to better predict the future success of a company.

As outlined in BCG’s analysis, there are several areas where strong ESG performance translates to upside.

Opening Up New Markets

Companies who find ways to reach traditionally underserved markets will build new business where competitors have historically not been able to build. The best example of this to-date has been private lenders focused on emerging or developed markets.

In a report released in April of 2018, The Global Impact Investing Network (GIIN) and Symbiotics presented the first comprehensive analysis of the financial performance of Private Debt Impact Funds (PDIFs) and over 100 Community Development Loan Funds (CDLFs). Returns for PDIFs seeking market-rate returns averaged 2.6% since 2012, with low volatility of 0.9%. Such PDIFs had a higher Sharpe ratio than a range of traditional investment products, including bonds and cash CDLFs paid an average of 2.9% to holders of their notes, with very little year-on-year variation.

Spurring Innovation

According to BCG, “Companies that adopt the TSI (total societal impact) lens will often identify new product features or attributes that can provide societal benefits while boosting the appeal of those products.” In 2008, CD&R and KKR owned US Foods, saved $8.2 million in fuel costs and avoided 22,000 metric tons of CO2 emissions (equivalent to more than 4,400 cars) by improving the efficiency of its fleet – as measured in freight tons per gallon of fuel – by more than 4 percent from 2007.

Reducing Cost and Risk in Supply Chains

The development of more inclusive supply chains—those that draw on individuals or companies that have historically been left out—can make those networks more resilient and cost effective because they are less dependent on a few suppliers and distributors, and raw materials can be sourced closer to the end market.

Strengthening the Brand and Supporting Premium Pricing

Companies known for products with positive environmental or social attributes, such as those that are responsibly sourced and have natural ingredients, can inspire customers’ loyalty and trust. That can translate into increased sales and even premium pricing on certain products for certain market segments, a powerful benefit in particular for the consumer goods industry. More than half of consumers in the U.S. are willing to pay more for environmentally-friendly products, according to a 2017 study from GfK MRI.

Gaining an Advantage in Attracting and Retaining Talent

A strong track record in contributing to society can energize the workforce and give a company an edge in the battle to attract, engage, and retain talent. Three-quarters (76 percent) of Millennials consider a company’s social and environmental commitments when deciding where to work and nearly two-thirds (64 percent) won’t take a job if a potential employer doesn’t have strong corporate social responsibility (CSR) practices, according to the 2016 Cone Communications Millennial Employee Engagement Study.

Becoming an Integral Part of the Economic and Social Fabric

Companies that explicitly work to support a country’s economic and social development goals can strengthen relationships with governments, regulators, and other influential parties.

An analysis of more than 300 of the world’s largest pharmaceutical, consumer goods, oil and gas, banking and tech companies by BCG found that those with more ethical operations, for example those seeking to conserve water, make bigger profits and are valued more highly than competitors. For oil and gas companies, the valuation premium was almost a fifth for those that combat corruption, have better health and safety processes or attempt to limit environmental damage. Earnings before interest, tax, depreciation and amortization were 3.4 percentage points higher for these groups, while in the pharmaceutical industry the EBITDA margin benefit was more than 8 percentage points.

Correlation Does Not Always Imply Causation

Like any good data analysis, it’s important to note that correlation does not necessarily imply causation. There are many data points to consider when analyzing value-drivers in private equity.

If you have no idea what is behind a correlation, you have no idea what might cause that correlation to break down. This understanding is one of the many drivers behind our work at Malartu.  A group looking to understand the causation of value-drivers like ESG initiatives needs a way to monitor operation data across the portfolio to include ESG metrics alongside financial outcomes to truly understand and replicate positive outcomes in the future.

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60% of investors surveyed by EY shared that they think ESG risks should be expressed in further detail. With this shift towards increasing demand and transparency, a managing partner must work to nail down efficient ESG Reporting processes. Case studies and guidelines published by research providers help with pinpointing ways to satisfy ESG company standards and stakeholder demands, however, “Large-cap multinational companies are getting better at ESG reporting, but the quality of reporting drops off significantly with medium and small-cap companies” according to EY. Large caps have financial flexibility to put the staff hours required for data aggregation and analysis. Unfortunately, the same can not be said for boutique firms.

There is a host of information available on how the corporate level businesses are accomplishing their ESG reporting. To understand more about ESG reporting in the land of small-cap listed equities, we spoke with Valdur Jaht, the founding partner of an independent asset management firm, Avaron.

Since setting up shop in 2007, Avaron has focused on Europe’s emerging listed equities and fixed income value investments. From Poland to Turkey, Avaron is taking on attractive, well-managed companies to eliminate existing inefficiencies and turn a profit. By identifying stakeholder demand and company standard, Valdur pioneered the development of ESG integration and reporting at Avaron.

Stakeholder push for ESG is on the rise

Back in 2011, one of Avaron’s limited partners requested more risk management strategies. Avaron was not the only firm getting pressured for increased reporting at the time. In 2012 only 21.5% of ESG related assets were invested relative to total managers assets according to GSIA.

In 2016, that percentage jumped to 26.3%. After the suggestion, Avaron immediately took action to incorporate ESG investment strategies, they understood the success of an investment was directly dependant on the longterm sustainability of that company.

Avaron incorporates ESG factors in company risk profiles before making acquisitions.

“In our investment process, ESG issues have the same weight in decision-making as other conventional things that investment managers analyze,” Jaht explains.

Matters of sustainability are as important as metrics like cash flow and scalability since they have such long-term implications. By placing such strong emphasis on the underlying potential of companies stock, returns will be optimized.

Better together

Collaboration is an integral part of Avaron’s successful ESG approach. They have joined forces with industry pioneers like PRI, CDP, and Climate Action 100+, demonstrating a clear commitment to sustainability and in-depth reporting. By working with other well established ESG platforms, Avaron has managed to transcend the challenges that come with being a mid-sized firm and has gained access to an experienced network globally.

Since joining forces with PRI nearly a decade ago, thousands of other companies, many of whom are larger than Avaron, have followed suit.

“To be competitive in the region [Emerging Europe] one needs to take this to attention and actually deal with [the data]. It is putting together the business we have and the values we hold.”

Market competition is increasing as the foothold of Western Europe ESG is spreading throughout the continent. LPs pushing for more transparent reporting pairs well with Europe’s increasingly progressive regulation regarding asset management. The obligation to satisfy LP demand and remain in accordance with legal parameters keeps Avaron’s ESG related policy up-to-date.

Do what you can with what you have

While the association with PRI brings value and credibility to Avaron’s ESG reporting practices, it is important to note the challenges that are unavoidable when operating with a smaller team. There is no reporting framework that works seamlessly across the industry, from large firms with hundreds of staff to smaller firms with just a handful of partners and analysts.

In Valdur’s opinion, the PRI framework has been designed to suit larger companies. Data requested by the reporting framework requires extensive personnel to track. This can be a cumbersome process for a ten person investment team. That has left Avaron looking for a more flexible but equally effective approach to ESG reporting. Having a system in place to optimize that effort would aid in translating qualitative information into quantitative metrics.

Standard data aggregation practices require continued communication between portfolio companies, LPs, and asset managers. From spreadsheet, to spreadsheet, to master spreadsheet, repetitive data entry consumes far too many hours that could be spent making analytical decisions to better the firm. With innovation in mind, Valdur sees a brighter future for ESG at Avaron.

Most firms are restricted in their resources available for allocation to ESG integration and reporting, but data proves that incorporating ESG factors into investment decisions can generate higher returns. Industry standards have been developed by networks and programs like PRI, and boutique firms like Avaron need to assess operational procedures to keep up. Identifying technology that enhances the reporting process will give Avaron the competitive advantage over other firms in the market. Satisfying company standards and stakeholder demand is essential for optimal risk management, regardless of how challenging it might be to accomplish.

Want to bring your ESG reporting to the next level? Talk to our team. Name * Name First Name Last Name Email Address * Firm Name Phone Phone (###) ### #### Thank you!
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2012 was a big year for the private investment world. On April 5, 2012, the JOBS Act was passed, a new legislation that would change who has access to invest in privately held companies.

The JOBS Act inspired a number of entrepreneurs to create investment platforms where groups of accredited investors could pool smaller investment amounts to participate in anything from startup investments to commercial real estate investments that were traditionally out of reach for anyone who couldn’t write a $1M+ check. One of the more notable platforms to emerge from this movement is Origin Investments.

 A track record of success

Origin has executed more than $900M in transactions and achieved 24% average net annualized returns since 2011. Their model is unique to other commercial real estate funds in that their funds are made up of accredited investors from all over the US who invest through their online portal. Investors sign up via Origin’s online portal, verify their accreditation, and have the opportunity to join various Origin funds as they open. Once committed to a fund, Origin makes capital calls like a more traditional fund would, but they also open up certain deals for co-investment if they have more room in the deal than what the fund can take. All of this is managed through their portal, which bolsters a seamless, and fairly enjoyable user experience.

I had the privilege of speaking with Marc Turner, Managing Director of Investment Management at Origin Investments, where we dove into all things Origin operations. Like any real estate operation, there is data flowing everywhere at Origin: from weekly leasing reports to FMV to return data. Marc’s team focuses on constantly improving their aggregation and reporting processes so that they can continue to differentiate the Origin investor experience from that of a traditional fund.

It’s about Visibility

For many funds, a typical LP report is old news. Marc and his team at Origin are changing that. Origin makes it a priority to produce informed, up-to-date LP reports on a quarterly basis and is actively investing in ways to make that reporting even more frequent.

Many firms produce reports that contain high-level on investment performance that could be months old. Origin not only delivers reports in a timely manner, they reveal how performance compares to their initial projections and how they’re responding to changes in the market.

Investors have access to all portfolio updates through the Origin portal where they can reference asset summaries and review their capitalization details. Additionally, they host annual investor events in cities where they have portfolio investments - cities like Chicago, Denver, Dallas, Charlotte, and four more similar metro areas. These events function as a sort of “State of the Union,” giving investors a forum to ask questions of fund performance, state of the market, understand Origin’s competitive advantages, and investment management.

Lobby at The Fletcher Southlands, an Origin Investment Property

More than just FMV

Marc’s goal for Origin’s investment management team is to have access to data in real-time. Reporting, both internally and to investors, isn’t just about FMV and return data. It’s about providing information on how actual performance compares to their original plan as that plan is unfolding.

It’s about asking questions like, “How are we adjusting to the market?” “How do these adjustments impact returns?”

These questions can only be answered by having access to changing data sets like leasing efforts and occupancy rates.

Data on real estate assets comes in different formats and frequencies. Aggregating and analyzing these data sets is a challenge for any asset manager and the reason for our work at Malartu.

Puritan Mill,  an Origin Investment Property


Internal operations teams like the one at Origin receive monthly updates from property management teams about the performance of their properties. At Origin, they also receive weekly leasing updates from the various managers in their portfolio. These updates all come in different formats, so there’s a good bit of effort and technology needed to make sense of this data in real-time. Aggregating these reports frequently isn’t just important for updating general and limited partners, it’s necessary to make the best operating decisions for these properties on a weekly basis. How can we use this information to inform investment decisions we’re making now? How can we fix small issues before they become critical? How do we use this data to improve our tenant experience? By investing in data aggregation and continuing to build out their platform, Origin is able to answer these questions. Access to granular data keeps their investment team informed and producing top-tier results.

Investing in Technology to Better All Areas of Your Operation

While Origin invests many resources in bettering their investor experience and the performance of their internal operations teams, they’re also constantly searching for ways to improve their tenant experience. In Marc’s experience, many real estate investors have been slow to adopt smart home tech and concierge tech that provide better living experiences. Origin is looking to change that.

“We’re willing to try new things… they may not all work as planned, but we have to try them to become better. We have to be different. We have to create a better experience. Everyone can have a nice apartment, so we ask ourselves, ‘What are the little things we can do that go a long way to make the best possible experience?”

The way Marc sees it, investing in tenant experience doesn’t just make people happier, it also creates more revenue streams for Origin investors. Better experience equals higher retention. With the processes Marc is working to put in place, not only will the be able to create a better experience, he will be able to tie those benefits to their portfolio performance data.

Leveraging Your Data

From LP reporting, to weekly leasing updates, to adjusting your business plan, to tenant experience... it’s all about data. The days of financial engineering and pump-and-dump are over, it’s about building value in every one of your investments from commercial offices to multi-family properties. Managing the plethora of data available to asset managers is a challenge, but an exciting one for groups who leverage technology and systems to realize the insights that data can offer. As evidenced by Origin Investments, it’s an exciting time to be a real estate investor.

Looking for a better way to harness the power of data in your firm? Schedule a call with our team today. Name * Name First Name Last Name Email Address * Phone Phone (###) ### #### Firm Name Thank you!
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