Private equity is opening up to the public cloud, setting up a new battleground for AWS, Microsoft, and Google to win over Wall Street

  • Private-equity firms have started to open up to the public cloud in the last two years.
  • PE firms are also moving portfolio companies to the cloud, pushing for discounts from providers.
  • The sector is a new territory for public-cloud providers to win over in the fight for market share.

A new battleground is emerging on Wall Street for public-cloud providers.

Private-equity firms have begun to embrace the public cloud over the past year, according to recruiters, IT consultants, and corporate strategists that work within the PE space. 

Like other Wall Street firms upended by the technology, PE firms’ motivation to make the move is tied to harnessing the copious amounts of data they manage. Housing information in the public cloud enables PE shops to cut costs and gain better business insights to help suss out deal-making opportunities.

And it’s not just the PE firms themselves. Many are also pushing to get their portfolio companies to make the switch as well. As a result, a cloud provider nabbing one PE shop’s business could actually lead to multiple deals via the network of companies it owns. 

It’s a big shift from the human judgment, relationship-driven business model that’s dominated private equity historically. The interest from PE firms has spawned a new opportunity for public-cloud providers that have fought to win more market share in the financial world. 

Why are PE firms going to the cloud

A move to the cloud promises improvements to the bottom line, according to Marco Santos, the CEO of USA and Latin America for GFT, an IT services and consulting firm. GFT works with more than 20 private-equity firms for digital transformation, including a handful of tier-one PE companies, he said. 

One of the largest PE firms in the US is now paying one-third the amount it was previously for its tech and application infrastructure since moving to the public cloud nearly two years ago, Santos said of one of his clients. 

Cost isn’t the only motivating factor. 

PE deals have become more complex, with funds investing in different geographies with more regulation, and include more data, according to Jamie Nascimento, cofounder and chief commercial officer of LemonEdge, a Blackstone-backed fintech that specializes in automation and accounting software for private-equity companies.

The data, which has historically been housed between different systems and portfolio companies, is easier analyzed and maintained in a central infrastructure, which the public cloud enables.  

Portcos matter too

It’s not just the PE firms that are moving to the cloud. Their portfolio companies are also adopting the technology.

Because more than half of the deals today are between PE firms, private-equity players are having to get creative to realize savings for their portfolio companies, Manoj Mahenthiran, PwC’s PE leader who’s worked with PE clients for the past 25 years, told Insider.

Since traditional PE strategies like reducing headcount and leveraging debt might be off the table in deals between PE firms, some have turned to cloud technology for their portcos. The migration to the cloud can accelerate growth and tech advancement and boost the selling price at exit, Mahenthiran said.

Some PE firms have tried to leverage their scale for pricing discounts among cloud providers, Mahenthiran said. PE firms have offered to not only move their own infrastructure to the cloud, but also bring their portfolio companies into the mix for a better deal. A lot of the public-cloud providers are taking the bait, Mahenthiran added. 

Major cloud providers, like AWS, Microsoft Azure, and Google Cloud Platform, have been hungry for more Wall Street market share. Other financial players — like banks, hedge funds, fintechs, and exchanges — have already made the move, with many inking preferred partnerships and multi-year deals with the Big Tech’s cloud divisions. 

“It’s a big market share fight right now,” Mahenthiran said. Some of the public-cloud providers have even subsidized the price of implementing the cloud to make the move more palatable for PE firms, given their obsession over the return-on-investment, he added.

Most private-equity companies on the cloud are on AWS and Azure, according to Santos and Nascimento, who would know because LemonEdge embeds itself into its clients’ cloud infrastructures. Both said Azure is beginning to outpace AWS in private-equity market share among their clients.

It’s still early days

With PE just catching on to the cloud, only a handful of bigger firms and their portcos have begun to make moves.

PE giant Blackstone, for instance, has moved most of its tech infrastructure to AWS. Most of the top-10 funds in the US are beginning to move to the cloud, with some standing up their own internal cloud teams to implement the technology in their portcos, Mahenthiran said. 

Much of the cloud work in private equity, until this year, has been on the fringe of the IT infrastructure, with independent pilots and satellite projects, such as real-estate investments, according to Santos and Deepali Vyas, global head of fintech, payments, and crypto at executive-search firm Korn Ferry.

But now, bigger organizations have begun to pull the trigger across different functions and funds and solidify cloud strategies and platform teams, Vyas said.

For the most part, private equity has been “waiting and watching” how hedge funds and banks have tackled the cloud before making big hiring investments, Vyas said. But the wait-and-see approach has put PE companies far behind their Wall Street peers. 

“The private-equity sector has been suffering because retail banks and digital banks” got a head start, Santos said. “They kind of drained this talent beforehand,” he added. 

That hasn’t stopped PE firms from trying to hire out data-science and cloud teams to help front-office researchers find new opportunities and oversee internal cloud infrastructure, Vyas said.

Jayson Bevacqua, vice president of data and AI recruitment at Selby Jennings, helps banks and hedge funds recruit tech talent. He’s starting to see private-equity firms approach his search firm for more data and cloud-focused hires, with one large TMT-focused private equity firm looking to build a team to help their portfolio companies ingest different kinds of data.

Do you work in tech and private equity? Get in touch with Bianca Chan via email at bschan@insider.com or the encrypted messaging app Signal at 646-376-6038. 

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