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Blog Dec 15, 2015

How Artificial Intelligence Increases Investors’ Returns / IRRs / Money-Multiples

Cash-flow relevant data that is needed to make investment decisions is hidden in documentation. Smart technologies can accelerate the underwriting process, enable better decision-making and thus lead to increased investors’ returns.

Decision making is mainly based on knowledge, ideally on factual, traceable information. The importance of being able to rely on concrete and accurate data is even more evident in the decision making process of investors. The data relevant for investors is primarily hidden in documentation, amongst others, legal documentation. Consequently, the decision making process is preceded by a thorough due diligence – legal and financial due diligence. People being involved in large due diligence processes know that such reviews can be very tedious and time consuming.

Automated, intelligent fact finding accelerates
underwriting process

Information extraction using artificially intelligent technology allows one to review documents and find the relevant data faster and with a higher degree of accuracy; reducing the time effort by up to 75% for critical fact finding during the underwriting process. Since these processes usually run on an accelerated timetable, artificial intelligence allows you to review a great amount of documentation in a highly structured manner. In addition, an artificially intelligent review enables perfect transparency by identifying documents missing from the vendor data room (e.g., amendments, invoices, index letters).

The advantages for an underwriting committee are impressive:

  1. Knowing what the legal documentation says versus a provided data tapes;
  2. Identifying the missing documents; and
  3. Traceability of information.

A clear view on contractual options as well as knowledge of missing data and discrepancies between tape and documentation are valuable information to consider. Multiple clients of LEVERTON’s software were able to discover formerly unidentified data with a valuation impact of more than $20 million per transaction. When investors leverage artificial intelligence to gain better data, they can adjust their underwriting decisions and thus make better underwriting bids.

Improved post-transaction data management

In addition, there are further – post-transaction – use cases for data collected with artificially intelligent software. Once an asset is acquired, asset managers can use the “Smart Data Platform” to kick off data management during the holding period. For example, LEVERTON’s platform enables users to line up multiple tasks in a ticketing system that different stakeholder groups (i.e., asset managers, management, investors, advisors) can resolve. The software allocates tasks efficiently as they are directly fed into the tasks and routines of the post-transaction operations. As an ancillary effect, operational costs are significantly reduced.

Once the holding period is over, the platform allows to kick-off transactions at any point of time, as all relevant, documented data is always up to date and instantly accessible. The data can be made available to potential buyers as well, significantly reducing the need for vendor due diligence and bringing advisors faster up-to-speed. As a result, potential buyers require less – but can get a lot more meaningful – advise from legal, financial and tax advisors.

Finally, LEVERTON’s platform allows all relevant players to review intelligent document data in multiple languages, thereby reducing tedious translation efforts.

Better decision-making due to faster access
to higher quality data

In a nutshell, better investors’ returns are achieved due to:

  1. Faster access to, more structured and better quality of Data, which allows for an improved underwriting judgment;
  2. an effective management of data / tasks / routines during the holding period;
  3. very limited vendor due diligence / independence on timing of exit;
  4. eliminates language barriers caused by multilingual documents; and
  5. reduced transaction costs – buyers and sellers.

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