CUSIP Global Services (CGS) has agreed a deal with data provider Aumni to bring yet more transparency to rapidly growing and economically important private markets.
The venerable provider of issuer and asset identifiers will use Aumni’s data, drawn from charter documents for venture capital firms, to create a set of its CUSIP identification codes for investors and other market participants in private markets, which now attract about a third of all institutional investment capital.
CUSIPs, created almost six decades ago, assign a nine-digit alphanumeric code to financial instruments that identify their issuer and other information such as asset type. They are commonly used in public markets in the US and about 30 other countries, in which investors rely on them to provide views of their portfolios and streamline trading, settlement, clearance and reconciliation.
CGS Senior Vice President, Global Head Scott Preiss characterised the partnership as a major step in bringing public market-style standardisation and rigour to private markets.
“This collaboration really was driven largely by the persistent challenge that the market lacks standardisation,” Preiss told Data Management Insight. “Particularly in venture capital and private equity, these markets historically relied on inconsistent and manual processes, which of course, lead to error-prone methods.”
Trusted Standards
CGS, which is managed for the American Bankers Association by FactSet, has turned to alternative and private markets after bringing its trusted system of standardisation to other once-esoteric markets including listed options, syndicated bank loans and tokenised securities.
The collaboration comes in response to growing demand from investors for data and access to such markets as public markets suffer increased volatility and declining returns. It follows the introduction of data and technology services tailored to the new influx of private-market participants as well as establish general and limited partnerships in private equity funds.
Salt Lake City, Utah-based Aumni is owned by JPMorgan and was founded in 2018 to provide investors with fundamental data on the companies of interest to venture capital firms, funds and law firms. Preiss said CGS had partnered with the company because its high quality data enables the provision of a holistic view across the portfolio companies and has the necessary expertise to generate insights and analyses from that information.
“From the get go, this seemed to be a match made in heaven,” Preiss said.
Opaque Markets
He explained that one key difference between private and public market data is that there are fewer disclosure requirements in private markets, which can result in reduced transparency – specifically, the lack of an “audit trail to an official legal offering document, which is the foundation of what we do at CGS”.
He said Aumni has a proven track record of managing consistent reference data for private securities and reconciling broken metadata that is crucial to automating the mapping of instruments to issuers.
“Given their speciality in venture capital, data and data solutions there was a perfect opportunity for CUSIP Global Services to offer standardisation to a market segment that suffered from a lack of standardisation, especially as it applies to symbologies and associated data,” said Preiss.
The introduction of CUSIPs to these one opaque markets is hoped to provide certainty and reliability for the key investor functions and adds another layer of transparency to the scope. While the Global Legal Entity Identifiers Foundation (GLEIF) is seeking similarly to standardise information on private business and their instruments, Preiss says he doesn’t anticipate there will be overlaps in what they do.
Similarly with Dun and Bradstreet’s DUNS numbering system, Preiss believes there is space for multiple providers, arguing that market participants will naturally choose the one that best suits their needs.
“Different symbologies serve very specific use cases, and the users in the market should decide what’s an appropriate solution for them,” he said, adding that CGS was on the ISO committee that helped draft the GLEIF standard.
“CUSIP was developed by some brilliant bankers who were early members of what is now the American Bankers Association, and they had the foresight and vision to really focus on specific functions that lacked for standardisation, which we take for granted now,” he added. “Our mission is to provide certainty and reliability for all of functions including trading, settlement and more. That’s different to some of the other identifiers.”
‘Tipping Point’
With more light being shone onto private markets and demand for that data growing, Preiss said the shift from public markets had reached a “tipping point” after 18-24 months of rapid change.
CGS offers a free service of fundamental identifier data on more than 200 of the top venture-backed companies and for a fee will complement that with richer data sets on those and the full universe of companies it covers, which is more than a 1000 of the largest and most active venture-backed private companies..
It is also continuing to invest in further ways it can help diversifying investors, including private credit.
“We’ve seen this story play out before; where there’s a lack of standardisation, CUSIP and standardised data and collaboration like this often leads to more operational rigour and efficiency,” Preiss said. “The public markets have enjoyed that for decades, and now we’re starting to see the birthing of private markets leveraging that same operational rigour.”
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