Technology has a big role to play in supporting tax compliance, say Christa Clark, partner and national leader of RSM’s investment funds tax practice, and Lauren Demas, principal and a leader of RSM’s partnership technology services group. They sat down with PF CFO to discuss how private equity funds can leverage technology to increase efficiencies and gain insights for smarter investment decision-making.
How is the use of tax data being enhanced across the private funds industry, both to deliver better insights and to facilitate faster investment decision-making?
Christa Clark: Today’s fund managers are looking for technology platforms to deliver their tax data in real time and provide powerful insights to help them make better and faster investment decisions.
In response to this need, RSM developed a proprietary platform called PartnerSight to support tax compliance functions in partnerships, including private equity, hedge and real estate funds, with a focus on collecting and streamlining massive amounts of disparate data.
Many of our clients also want help identifying ways to increase efficiencies within their current structures so they can quickly respond to investor demands. This is where technology solutions can prove invaluable. PartnerSight allows us to identify and tag critical components of our clients’ data so we can mold it into tailored reports to address specific investor questions.
Lauren Demas: In the partnership space, we don’t see many tax software systems in use, which means data must be enhanced manually. Tax teams are super users of systemized data from other departments, and they build most of their structures around specific tax requirements. When the tax department receives inquiries, the team must spend time and effort manually manipulating decentralized data in preparation for layering in tax analysis. Technology innovation is eliminating this data wrangling we’ve all experienced. Instead of spending hours collating data, tax departments can run reports directly from a system, such as PartnerSight, saving precious time and allowing the team to focus on analytics.
How is tech helping firms meet investor demands and enhance data management?
Clark: Because investor demands are sophisticated and can require a lot of attention, particularly around tax efficiency at both the portfolio level and the investor level, technology is helping to provide transparency into client data and expedite the data analysis process. Technology is also helping to provide foresight when it comes to considering the impact of potential changes to tax legislation, especially when planning an upcoming investment sale or looking at how to structure an upcoming acquisition.
Furthermore, managing the K-1 production and delivery process can be a huge undertaking depending on a variety of things, including the complexity of a structure and the number of investors. Technology is helping make these complex tasks much more manageable. Firms that use different service providers might struggle with managing the flow of data and timing of deliverables. Leveraging technology can streamline both the allocation and tiering process within the entire structure. Technology that knows the tax rules and can track the details saves hours of verifying data. The technology can also aggregate this data into meaningful outputs that help investors make informed decisions.