Private markets generate large quantities of data around investors, funds and transactions. Yet much of that information still moves between asset managers, wealth platforms, custodians, administrators and other participants through PDFs, portals and other document-based processes. Information that already exists digitally can be embedded in a document, sent to another organisation, extracted and then entered into another system.
As private markets expand further into wealth management, that fragmented approach to exchanging data is coming under increasing pressure. More investors, smaller allocations and a broader range of products mean substantially more investor and transaction data needs to move between organisations – while remaining accurate and consistent throughout the investment lifecycle.
For Rashad Kurbanov, CEO and Co-Founder of private-markets infrastructure provider Corastone, this is emerging as one of the principal constraints on the industry’s ability to scale.
Unlike public securities, which are typically held through custodians and central securities depositories using omnibus structures, private-market investments often require information to be maintained at individual-investor level. Wealth managers, custodians, fund sponsors and administrators therefore need to exchange detailed information covering everything from identity, tax status and beneficial ownership to eligibility, subscriptions, capital calls, distributions and transfers.
“Data that already exists digitally is routinely embedded in documents, transmitted between parties, and then manually extracted and re-keyed into downstream systems,” Kurbanov tells Market & Alt Data Insight.
The result is duplication, reconciliation and the possibility that different organisations maintain different versions of the same investor or transaction record. Those inefficiencies become more significant as private markets move from a relatively concentrated institutional investor base towards potentially much larger numbers of wealth-management clients.
A Question of Interoperability
It might appear that greater data standardisation provides the obvious solution. Kurbanov, however, argues that the industry’s problem is more nuanced, with much of the underlying information already standardised in substance. Participants broadly need the same core investor, regulatory and transaction information. The difficulty arises because asset managers, wealth platforms, administrators and custodians have developed their own systems, data models and workflows for managing it.
“The real problem is not what information needs to be exchanged; it is how that information is exchanged,” he notes. “When people talk about standardisation, they often mean creating a universal data language or protocol that asset managers, wealth platforms, administrators, custodians, and other participants must all adopt. While that sounds attractive in theory, it can create a significant practical barrier to adoption.”
Getting every participant to rebuild existing systems around a single industry data model would be expensive and difficult. Corastone has instead taken an interoperability approach, describing its platform as a “universal translator” between different systems and data structures.
Participants retain their existing infrastructure, while the interoperability layer translates information between them. Over time, Kurbanov believes greater consistency around definitions, validation rules and workflows can emerge as more organisations connect, rather than requiring agreement on a universal standard before they can exchange data.
When Simpler Products Generate More Data Complexity
In May, Franklin Templeton announced private-market model portfolios using Corastone’s infrastructure. The structure is intended to simplify access for advisers, providing diversified exposure through an SMA-style arrangement with investors retaining direct ownership of the underlying funds.
However, making the experience simpler at the adviser level doesn’t remove the complexity of the underlying assets. A model portfolio needs consistent information covering investor positions, fund holdings, NAVs and valuations, subscriptions and redemptions, available capacity and other fund-level data. Different funds can also have their own dealing calendars, notice periods, eligibility requirements and liquidity provisions.
A single portfolio-level instruction may therefore generate multiple underlying transactions and associated data changes across several funds and investor accounts. “The challenge is no longer just processing a transaction; it is orchestrating a network of related transactions and maintaining consistency across all of them,” says Kurbanov.
This illustrates a broader issue as private markets expand through wealth channels. Simplifying the investment experience at the point of consumption places greater demands on the data infrastructure underneath it. The more products resemble familiar wealth-management structures at the front end, the more important it becomes to coordinate the considerably more complex fund and investor data behind them.
Creating a Shared View of the Data
Corastone uses permissioned distributed ledger technology (DLT) as part of its approach to that problem. But Kurbanov doesn’t position DLT as a substitute for conventional APIs, databases or workflow automation.
APIs can efficiently move data between organisations, but connectivity alone doesn’t necessarily solve the consistency problem. Two counterparties can exchange information electronically and still maintain separate copies of the resulting transaction in their own databases. If those records subsequently diverge, reconciliation is still required.
Corastone’s use of permissioned DLT is intended to provide authorised counterparties with a shared transaction state and agreed history, while allowing individual organisations to retain control over their data and determine who can access it.
“The value is that DLT can provide the missing coordination layer between them: a shared, permissioned, and tamper-evident state that no single participant has to own on behalf of the entire ecosystem,” says Kurbanov. “That is particularly valuable in private markets because the ecosystem is highly interconnected, but no single institution should necessarily become the industry’s central data owner.”
Viewed from a data-management perspective, the proposition is therefore less about blockchain itself than establishing a reliable shared record across independent organisations. The objective is to reduce the multiple versions of investor and transaction data that currently create reconciliation work, while retaining the permissions and controls required for sensitive information.
From Better Data Exchange to Greater Automation
Improving data interoperability also has implications for automation. According to Kurbanov, many sophisticated private-market participants have already automated significant parts of their internal operations. The break in automation frequently occurs when data or transaction instructions need to cross organisational boundaries, where firms can fall back on documents, emails, portals and manual intervention.
Private markets will retain characteristics that distinguish them from public securities. Funds can have different eligibility requirements, notice periods, valuation methodologies and liquidity provisions, while transfers and other events may require approvals or human judgement. But those characteristics don’t necessarily require the underlying exchange and validation of data to remain manual.
“The objective is to automate everything that is deterministic and data-driven, while preserving human intervention where a genuine judgment, exception, or approval is required,” says Kurbanov. “In that sense, the realistic goal is to achieve comparable levels of operational efficiency and straight-through processing despite the inherent differences in the underlying assets.”
As private markets become a larger component of wealth portfolios, the industry’s data challenge is consequently changing in scale as well as complexity. Providing access to private assets is only part of the equation. Asset managers, wealth platforms, custodians and administrators also need to exchange increasingly large volumes of investor, fund and transaction data without repeatedly turning structured information into documents, creating duplicate records or introducing manual reconciliation.
For private markets, greater scale may ultimately depend as much on making data interoperable as on making the assets themselves more accessible.
Subscribe to our newsletter
