Blackstone’s launch of a business unit dedicated to the creation of products that give US pension funds access to private markets has raised the data challenge for many established investment managers.
Blackstone is seeking to win pension trustees over to an investment space they had traditionally been wary of or have been restricted from entering by regulators. It may open the floodgates to more firms offering similar products to win some of the US$40 trillion held by 401(K) pension schemes.
For many private investment management companies, however, the potential data demands that will come with a sudden surge of investment from regulated bodies may be overwhelming, warned Cesar Estrada, private markets segment head at financial data, operations, and analytics provider Arcesium.“The adoption of technology becomes inevitable if firms want to grow, and poor technology could put someone out of business if they start making mistakes,” Estrada told Data Management Insight.
Data Access
Many firms are struggling with the nuanced data management requirements of private markets, in which information is commonly tied into reports, data is incomplete or of poor quality and where the lack of liquidity makes valuation of assets difficult without sophisticated analytical capabilities.
Such firms are often characterised by legacy tech stacks that are ill-equipped to manage and process the sorts of unstructured data that private markets generate. The difficulties this presents will be magnified by the impact of what Estrada calls the “reutilisation” of private markets.
He warns that systems already having difficulty managing private markets data will find it even harder to deal with the greater transparency required for engaging with regulated bodies or coping with a higher frequency of reporting and valuations. They will be expected to calculate daily net asset values, provide bufferers in the form of larger liquidity sleeves and deal with a faster rate of redemptions and reallocations.The change could also bring a higher volume of investors and a more complex ecosystem of players than private market funds are used to. The complexity “compounds on all of those dimensions”, said Estrada.
Consequently, organisations must adapt or lay themselves open to lost business and eroded competitive edge.
“The legacy of the private capital markets is that the infrastructure was built for institutional investors on a quarterly cadence,” he said. “Now, if you’re still living in that world, all of a sudden you want to produce a heavy operating environment for 401(k) types of products, well, that’s a big stretch.”
Changing Market
The sudden growth of capital allocation to private markets has caught some managers off guard but others, particularly new players, have been quick to realise that technology has lowered the bar to entry and are now setting the pace in automation. That’s especially true for firms that are taking advantage of artificial intelligence to empower their operations.
“Only a few years ago, the figure of the chief technology officer or of the data lead didn’t really exist much in private markets, or if it did, it was really not a capital C as in the chief financial officer or the chief operating officer,” he said.
“It was a small-C that was reporting into one of those formally or informally. And now the stature of that role is quickly being elevated to the same level to support the need to be more technologically advanced and prep for the use of AI in a more meaningful way to streamline investment operations and accounting.”
Fund Structures
New York-based Arcesium, a past A-Team Group Data Management Award USA winner, offers data, automation and analytical services to private market investment and management, including through its Aquata self-service platform.
Estrada said the managers who had included open-ended evergreen funds and structures of similar complexity will benefit because those instruments are likely to be the sorts of targets of pensions funds.
“Firms that started launching other types of products beyond drawdown structures – that have liquidity, and have a higher cadence of reporting and valuation – have already exercised those operational ‘muscles’ that they may not have before,” he said.
They will prosper, he added, because they have the technological expertise to adapt their data operations.
“The firms that are best equipped today to deal with the data and the technology challenges are those that have been taking foundational steps toward it – through higher-frequency reporting, increased transparency, and more,” he said.” They have advanced because they have already been moving.”
Subscribe to our newsletter
