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Private Equity Data Science Professionals Talk Logistics

Feb 19, 2020

Business Insider’s Casey Sullivan wrote recently on six private equity firms to watch for how they use data science. Helpfully, Casey pointed out the key individuals that each have hired to lead their data teams.

We agree with the quote attributed to Afsheen Afshar, the former chief artificial intelligence officer of Cerberus Capital Management, who said “the winners will be the ones who do it sooner, and faster, and more wholesomely. The losers will sit and watch.”

We would add, that if you had to choose between sooner, faster and more wholesomely, we would recommend erring on the side of more wholesomely. When deploying a transformative technology, there is a first mover advantage. But the first mover may not understand what they have and fail to look beyond the tactical implications.

As Peter Thiel pointed out at a Y Combinator lecture, in chess, the last mover… that is to say the player who ends up controlling the board at the end of the game is the winner, and they’re not necessarily the first mover.

Last movers can’t be too slow, but how do they ensure the benefit of execution supersedes the need to be the very fastest?

Since chess is a model for war, let’s borrow a saying sometimes attributed to U.S. General Omar Bradley, “Amateurs talk strategy. Professionals talk logistics.” Too often military history books are littered with stories about brilliant generals who won spectacular battles, but lost the war. Similarly, when looking at who will win the data war and provide the model for the future, what if investment insights and finding edge, is secondary to the logistics of ensuring a fund is adequately supplied with capital and talent to grind down any obstacles in its path?

That’s why I would point you to Michael Recce on Business Insider’s list. If you look at where each executive was before being hired into private equity, Recce stands out as coming from an allocator before joining Neuberger Berman. Recce was previously with Singapore Sovereign Wealth Fund GIC.

That suggests to us that when he thinks about data, he understands what allocators want to see, and how they want to see it so that the pipeline of capital that allows for wins and losses stays flowing. As Seth Klarman has been reported to have said, a great client cashes a check when it’s handed to them, and writes a check when asked. That is to say, they have confidence in a fund manager when returns are good, and when they have the right information to operate off of, they continue to be confident in the fund manager when they need more time to become good, and capital is needed to get there. Client alpha matters.

Business Insider looks at what each of the six firms and their data specialists are doing to hunt for investment insights. That’s appropriate. But what if that is “strategy.” What if the real innovation is data operations and “logistics” that face and serve LPs and allocators first?

What if wholesome data logistics by professionals wins against investment strategy that scores points on individual investments, but loses the war?

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