Global Private Equity Risk Index Highlights Risky Insight From Digital Chatter

According to our analysis, digital chatter relating to risk events was detected, on average, 185 days before the incident peaked on notable mainstream media coverage. This delta represents vital time to prevent or mitigate damage to entities associated with the firm, including its reputation, its assets and especially its executives.

The following chart shows the wave of digital chatter that happened in the days leading up to, and following, an actual risk event. However, as often is the case, a revealing trail of risk signals preceded this trending topic. It’s in the “white space” that occurred in the weeks and months before the damaging wave of digital chatter materializes where private equity firms can gain an early-warning advantage over an emerging risk event.

Understandably, private equity firms struggle to keep pace with digital chatter. There’s simply too much of it, moving too quickly, across too many social media platforms. This leaves little time to detect and react, let alone validate whether or not the information is credible.

Our analysis looked at five key risk pillars. However, we found that when a crisis, on the surface, may seem like a singular issue it will often unearth other problems for a company, or even an entire industry. This knock-on effect from one risk pillar to another highlights how a singular problem, without successful and timely intervention, can develop into a complex web of crises for a private equity firm and its portfolio companies.

This was most evident this quarter with unemployment-related risks deriving from governance failures, which often saw corresponding volumes of online commentary relating to social issues. Discourse relating to workforce layoffs was prominent across a wide variety of industries, reflecting the impact of ongoing economic instability.

For example, highly publicized striking unions in the entertainment and automobile manufacturing industries amplified digital chatter about social issues in general. The recent attention of these strikes has resulted in wider digital chatter surrounding workers’ rights at portfolio companies, indicating the possibility of union-related discourse spreading to other industries.

A surge in environment-related risks correlated with the summer season in the northern hemisphere, where a wide variety of countries experienced recording-breaking temperatures and devastating wildfires. In turn this instigated digital chatter scrutinizing the role of portfolio companies in mitigating the damage caused by their environmental footprints.

Regional analysis of digital chatter indicates that risk surrounding environmental issues is more prevalent outside of the U.S. and Canada. This is likely due to extreme temperatures and wildfires occurring in many parts of the northern hemisphere during the summer.

The non-renewable energy industry saw the most overall environment-related digital chatter volume due to the intrinsic link between the energy demands of growing populations and the resulting environmental footprint.