Backstop Solutions Group only recently expanded its cloud-based portfolio monitoring software into private equity, but according to Adam Pinkert, that’s the optimal application for the product.
“A hedge fund, they buy or short a stock, then they just monitor it,” Pinkert said. On a private equity investment there could be consultants, lenders, maybe new management. “Are there add-on investments you’re going to make, are there roll-ups that you can make? There are all these moving parts you have to keep track of. Our software is very well-suited to perform that task.”
Founded by former Chicago-based hedge fund manager Clint Coghill, Backstop was originally intended to help with sales and marketing — or fundraising, in PE parlance. It developed into an investor relations product with a liquidity module, at which point “it became interesting to allocators, family offices, pensions, endowments, and even consultants.”
“The core background of the system has remained unchanged,” Pinkert said, even as Backstop has configured it to serve different niches in alternative investments. The private equity offering focuses on buyouts, venture capital and real estate. “All have almost identical needs, with a few different transaction types built in.” The software-as-a-service (SaaS) model means that clients are “able to use all of it or just parts of it, depending on how they want to subscribe.”
“Our sweet spot is middle-market,” Pinkert said — funds up to $500 million. “We do have some funds that are up to $2 billion.”
Pinkert learned the private equity business on a consulting project with a Chicago real estate fund. He continued to work in that sector, finding deal sponsors, until “2008 happened and there were no more deals to be done for a while.”
At that time private equity, which had been very paper-based, was moving to a portal model, something Pinkert was familiar with from a prior job in internet consulting. He went to work for Investment Café, a provider of portals to the alternative investment industry. (“No one had one and everyone needed one.”) That company was bought by eFront, and Pinkert became business development manager for the western region.
Pinkert said eFront’s software “comes at it from more of GL [general ledger] viewpoint,” whereas Backstop’s is more “managerial.” GPs can fundraise, produce capital call and distribution notices and generate performance metrics, “to the point where it can produce quarterly reports.”
On the portfolio side, the software can track deal flow, deploy capital and monitor asset values. Portfolio companies can enter KPIs directly into the system, which then highlights areas of concern.
Complexity is the engine of demand for the product, Pinkert said, which can replace “disparate systems” that aren’t “necessarily institutionalized, so they’re exposed to key man risk, if something happens to one person and all their spreadsheets.”
These days everyone’s got a database: “All this information has to be populated. Ease of access to systems on the consumer side has driven a requirement for greater systems on the manager side, so that they can solve for the questions that are being asked.”