Obtaining and managing data remains a sticking point for investors in private and alternative assets as financial institutions sink more of their capital into the markets.
In a poll of viewers during a recent A-Team LIVE Data Management Insight webinar, respondents said the single-biggest challenge to managing private markets data was a lack of transparency and inconsistent data quality from general partners (GPs).
With an Aviva study showing almost three quarters of institutional investors forecasting higher returns from private markets than public markets over the next five years and half of them planning to increase allocations into such securities in the next two years, the data challenge is one of growing concern, panellists at the webinar agreed.
Asset managers are under increased pressure to achieve granular risk oversight and operational efficiency like never before, the webinar – entitled Unlocking Transparency in Private Markets: Data-Driven Strategies in Asset Management – heard.
Fundamental Challenge
The fundamental reason for these challenges is the inherent complex and fragmented nature of private market data. The failure to consolidate inconsistent, non-structured data presents not merely an operational nuisance, but a barrier to robust decision-making, regulatory adherence, and genuine performance attribution, the panellists said.
The panel comprised Åse Bergstedt, Senior Sustainability and ESG Advisor; Rupert Davies, Fractional ESG Director at ESG Sum; and, Nicholas Wood, Enterprise Data Management Product Manager at Rimes, the event’s sponson.
The data processing burden faced by institutions can be more acute depending on the use case. For instance, one panellist said that for many ESG teams, “80% of your time… is data collection, is data validation”.
The panel suggested that outsourcing trends among data teams may be mitigating the search for a solution, removing control from core decision makers. Leading firms are embracing internal control, deploying technology to manage data flow while ensuring confidentiality is maintained—a crucial concern given the sensitive nature of the information.
Confidence Lacking
The insecurity that many organisation feel about their private market data capabilities was elucidated in another poll, which found that fewer than one in 10 respondents were confident in their ability to accurately track performance and manage risk in their private securities allocations. A plurality of respondents said they were somewhat or moderately confident, the two most common responses.
Automation is the only sustainable route to reducing operational drag, the panellists agreed, echoing the findings of a third poll. Machine learning (ML) strategies are essential for tasks such as auto-extracting items from GP reports and consolidating unstructured data. However, technology must not operate in a vacuum. The panel stressed the importance of combining technological tools, such as AI, with domain expertise.
Successful firms are investing in human capital to perform crucial consolidation and checking functions, ensuring that automation supports, but does not substitute, expert verification.
Greater Demand
The demand for data granularity is increasing, especially as institutional investors seek to integrate information into their existing risk frameworks. Practitioners are moving away from traditional, high-level reporting towards “bottom up intelligence,” drilling down data to the fund, sector, strategy, and capitalisation size.
For ESG data, the starting point for compliance and value creation must be a materiality analysis. This process helps narrow a potentially vast scope of metrics down to a manageable, core series that links environmental, social, or governance factors to actual financial value. This foundational work is key to addressing the overlaps observed between regulatory frameworks, allowing firms to use the same data points for all of them.
The implications of poor data extend directly to financial stability and legal risk. Unreliable data creates a tangible regulatory risk.
Private markets firms are now required to demonstrate how investing in ESG metrics contributes to the overall fund’s performance. Research suggests that good data management and transparency can deliver a substantial competitive edge, potentially leading to a 6 per cent to 7 per cent uplift in the exits.
Given the unique and heterogeneous nature of private asset strategies, off-the-shelf benchmarks are not really a one-size-fits-all solution. The consensus among the panel was that there is a compelling need for highly customised benchmarks to accurately measure performance against peers, sectors, geography, and maturity. Using in-house custom benchmarks can also serve as an effective tool for driving ESG uptake by creating healthy internal competition among portfolio company chief executives.
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