Navigating Uncertainty: Intelligence-driven Strategies for Investment Resilience

Resilience as a discipline is constantly evolving across the financial services sector. This article will outline how an increasing number of organisations are using intelligence to horizon scan for risks to help them navigate disruption, and in doing so, are optimising intelligence to proactively respond to real world risks and disruptions. Based on our experience of working with private capital firms over the last few years, progressive organisations are now developing and enhancing their data strategy and operating governance models, with an increased focus on utilising intelligence to support effective decision making.

Why firms need greater resilience?

Private firms have investments that are typically over a multi-year time horizon. Capital deployments and drawdown by the firm from co-investors and limited partnerships need to consider global events such as sector exposure, interest rate risk, geopolitical stability, while finding companies to invest in, as these may threaten the status quo. It is therefore crucial to take a proactive, intelligence-led approach to safeguard business, investments and unlock new opportunities.

Data and analytics governance

After 30+ years of leading performance, a combination of factors including macroeconomic headwinds, rising interest rates and inflation, an uncertain growth outlook, and increased competition have put Private Equity (PE) returns (and firms themselves) under pressure; all while dry powder has grown to record levels. 

Data insights have emerged as a critical factor in a PE firm’s quest to reinvent and differentiate across multiple aspects of its business – starting with the investment playbook and deal sourcing all the way across to value creation and investor relations.

PE clients face disjointed data strategies which often are not aligned to enterprise and business objectives. Further complications arise from the utilisation of legacy platforms that can’t support complex and emerging business use cases or scale for sophisticated modeling. Before even considering the right model, clients are faced with challenges around sourcing, capturing and maintaining often inconsistent data from disparate sources as an input to their data models. 

Several PE firms have invested in and are scaling data management and analytics capabilities internally, however only a handful of firms have truly harnessed the power of data. Private firms can further enable intelligence by selecting a Data & Analytics framework for structured and unstructured data alike, as inputs to models that provide early warning signals to consumers.

Deloitte’s resilience through intelligence

The global environment continues to prove both volatile and unpredictable across political, social and economic pillars, leading to geopolitical, economic and industrial tensions. Recent years have shown considerable increases in global conflict and technical disruption, be that the Russia Ukraine conflict, Middle East instability or widescale technology outages. This unpredictable global environment requires organisations to be more proactive than ever in understanding the likelihood of future scenarios that could severely impact their business or investments. Leveraging data and intelligence is important in making strategic decisions, proactively rather than reactively.

This is where the value of a managed service comes in, from Deloitte’s Intelligence Services Centre (ISC), which is based on government and military methodologies to support business-critical decisions, considering each organisation’s unique requirements. The ISC also acts as an “intelligence cell” supporting organisations through crises, advisory and recovery services.

By using an integrated intelligence-led approach to resilience, PE firms can be better prepared for the future and find greater control in navigating uncertainty. To do this firms need to adopt adequate capabilities and methodologies to ensure they are able to process, collate and analyse the data in an efficient and effective way, in order to derive the most actionable intelligence.

There are proven approaches to analysing multiple sources of information to create meaningful and digestible intelligence. Deloitte’s approach is based on government and military methodologies that assist in providing a potential scenario that could impact or disrupt a PE investor or investment. Understanding the potential of a likely future disruption or event is only the first step, because intelligence alone holds limited value, if it is not used to support the strategic decision-making process. 

Representative scenario design and stage gates

Setting Stage Gates of a plausible course of action for how a disruption would unfold enables organisations to map future scenarios that could be detrimental to them. Once the scenario has been designed, an organisation can exercise and rehearse how they would respond to the scenario, so that if it should come to fruition they are prepared to respond, rather than react. Through continuous monitoring and intelligence assessments, the future scenario can be tracked and updated accordingly to enable an organisation to maintain or adjust their response posture and be optimised for a crisis or disruptive event.

By integrating and optimising the use of intelligence, firms can determine their preparedness to face a disruption. Organisations can enhance their ability to understand likely future events through intelligence-led scenario design and prepare themselves for impacts by exercising and testing that is grounded on intelligence. Through these steps firms can make intelligence-based decisions and be prepared to respond to events and impacts that have already been considered, making them more resilient.