As private markets grow, expand and democratize, investors are demanding transparent, accurate and up-to-date data from their managers—not a PDF summary, but actual real-time data. Those managers who are able to meet this demand by developing alternatives for the less-than-ideal processes now used for data management and analysis will find themselves with a competitive advantage in accessing opportunities and capital.
QUICK TAKES
72% of insurance managers and 63% of private markets asset managers believe data management and analysis capabilities have become an important source of competitive advantage for their organizations. (State Street)
62% of global assets managers say their organization is wasting a considerable amount of time and resources dealing with data because of manual processes and outdated systems. (State Street)
According to a recent survey, transparency of data/information related to private markets is the number one operational concern when investing in private markets. (State Street)
In today's rapidly evolving financial landscape, asset managers face the pressing challenge of keeping pace with the expanding private markets. To avoid being left behind, they must address the rising demands from investors and regulators for enhanced data transparency, as well as effectively integrate environmental, social and governance (ESG) factors. State Street's recent report, "No Going Back: New Realities in Private Markets," sheds light on the key drivers pushing asset managers along this path.
Transparency Pressure from Investors: With the increasing acceptance of private markets as a viable investment, as well as the expansion of choices and asset classes, limited partners (LPs) are demanding more frequent, accurate and detailed data to conduct their investment analytics. The outdated practice of submitting quarterly updates in PDF format is no longer acceptable. Asset managers must now find ways to provide investors with access to real-time, standardized data that allows for easy comparison between different asset classes.
Increased Regulatory Scrutiny: Regulators are tightening their oversight of private markets, with a particular focus on requiring greater transparency in disclosures. This heightened regulatory environment necessitates the implementation of robust reporting tools and systems specifically tailored for private assets. By doing so, asset managers can meet the regulatory requirements and improve transparency for all stakeholders involved.
Mounting Retail Interest: As private assets become more accessible to retail investors, there is a growing expectation for data quality and accessibility to match the standards set by public markets. Regulators worldwide are working toward making up-to-date valuations available to the retail sector. To meet these expectations and bridge the gap, private market players must significantly enhance their data management and reporting capabilities. Transparency is key to building trust with retail investors and enabling them to make informed investment decisions.
Sustainability Push: Institutional investors and allocators have committed to sustainability targets and net-zero initiatives. To fulfill these commitments, private market investing must also play its part, which includes adopting consistent reporting standards for ESG metrics. Asset classes like real estate and infrastructure need to improve their current capabilities to effectively measure and integrate ESG performance. As transparency becomes increasingly paramount, nearly two-thirds of institutions expect ESG to be one of the most scrutinized areas in private markets.
Challenges in Meeting Investor Demands
While it may seem straightforward for asset managers to provide investors with the desired data, existing models were primarily designed for internal analysis rather than external distribution. Several challenges impede the timely provision of accurate and detailed data:
Limitations of Excel Spreadsheets: Many finance departments still rely on excel spreadsheets for analysis, but the lack of standardized templates hinders easy comparison between different asset classes. These models are often complex and time-consuming to build, with various departments contributing to different sections. Consequently, it takes considerable time for asset managers to generate fund net asset values (NAVs) or run portfolio scenarios. Standardization and automation of reporting can unlock significant efficiency gains and facilitate scalability across the portfolio.
Lack of Confidence in Reported Data: In addition to manual processes, the private market suffers from a lack of data accuracy and reliability. Each organization uses its own definitions and reporting methodologies, leading to variation in data normalization and standardization across asset classes. Limited historical data and resource-intensive operations further contribute to potential analysis errors. Consequently, LPs often lack confidence in the accuracy of the analysis they receive and struggle to make comparisons or verify the data against references. Data transparency remains one of the biggest challenges in private market investing.
Narrow Vision Toward Data Management Solutions: Addressing data challenges in private markets requires a shift from the status quo and quick fixes. However, the industry has primarily focused on developing point solutions to meet immediate LP demands or compliance deadlines. While these solutions may address specific needs, they are resource intensive and can make it difficult to obtain a unified, overall portfolio view.
Private market managers and fund sponsors have taken the first step in bringing their data management and analysis into the 21st century—they recognize they have a problem. Many have taken the next step—they’ve detailed the problem. Now it’s time to find solutions. Next week’s post will look at what the industry is doing to meet investor demands, improve transparency in an historically opaque market, and reduce costs via better use of data resources.