Private markets investors are dogged by a “data transparency crisis” that is exposing them to greater risk of compromising their fiduciary integrity and losing their competitive edge, according to a new report.
In what the authors call a private markets paradox, the report by Rimes states that investors are beset by a lack of data transparency at exactly the time when they most need visibility. Only through the adoption of modern data management platforms that support artificial intelligence applications can firms correct their data deficiencies, it argues.“Data inadequacy is now fuelling investor behaviour, where operational trustworthiness is becoming a primary factor in capital allocation,” the report, published by A-Team Group, states.
“Overcoming these structural deficits through modern enterprise data management and artificial intelligence is no longer an optional IT project. It has become a core strategic imperative for meeting investor demands, satisfying regulatory scrutiny, and unlocking superior, tech-driven returns.”
Defining Characteristic
Data weakness has become a defining challenge for investors in private assets as the markets they operate in surge. Valuations of assets under management in funds alone have reached around US$14.05 trillion, a 27 per cent rise since 2020. They are forecast to climb to $23.9tn by 2021. When hedge funds and other non-public securities such as property and private credit are brought into play, the figure could be almost three times that, according to research by Bain and Company.
The report, entitled “The Transparency Imperative: Forging Competitive Advantage in Private Markets Through Next-Generation Data Management”, explains that fundamental data and technology shortcomings are at the core of challenges to automating investment, risk and other processes as well as to deriving analytical insights.
It cited a survey of industry practitioners at A-Team Group’s Data Management Summit NYC this year, which found that data transparency was rated as either “Poor” (71 per cent) or “Non-existent” (29 per cent), while 80 per cent of experts attributed the crisis to fragmented data sources, poor data quality and a lack of data standards.
Unified View
Fragmented data and technology systems, some inherited as a result of consolidation among fund managers, are hampering investors’ ability to present a unified view across their data estate. As demand for private assets grows, these firms are having to manage increasingly complex operations manually.
“This heavy reliance on manual processes — characterised by voluminous spreadsheets — for managing multi-billion-dollar investment decisions creates vulnerabilities,” the report stated. “The potential for a single human error, such as a misplaced digit or a broken formula, can rapidly escalate into severe compliance risks or financial misstatements.”
Such a situation is not conducive to managing the data that is entering their systems in unstructured form via the likes of PDFs and other reports. As well, without the technological firepower to turn that data into usable information, firms are unable to derive the insights they need to inform their investment decisions.
Among the critical processes that are vulnerable to error in this environment are asset valuation, risk management and ESG regulation compliance, the report argues.
“These nuances demand specialised, sophisticated solutions capable of managing subjectivity, ensuring auditable provenance and processing complex, forward-looking datasets,” the report stated.
Standardisation, Governance
Automation is key to solving these challenges but that would only come with improvement to data transparency through standardisation and governance.
The report argued the case for the adoption of the Institutional Limited Partners Association (ILPA) blueprint for structuring and automating data workflows.
“The technical impact of this standardisation is profound,” it stated. “When data arrives in consistent, known formats, technology platforms can build optimised, automated ingestion pipelines.
“This eliminates the need for bespoke data mapping for each client, which in turn accelerates data validation, reduces error rates and lowers the total cost of ownership for the firm.”
Modern Processes
The solution to these vulnerabilities can be found in the adoption of cloud-native, modern data platforms that possess the capabilities to convert and bring order to unstructured data while at the same time applying AI to mine and surface insights from data streams.
The report concludes that:
- Automation is a non-negotiable risk mitigation strategy because firms can no longer rely on manual processes. Nor can they ignore the benefits of automation offered by modern data management and AI.
- Contextualised data is the foundation of value because data on its own is useless unless it is part of a holistic view.
- Operational alpha is the new competitive battleground in markets where transparency has yet to be commodified and can offer an edge.
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