As demand for private markets data accelerates, asset allocators are finding themselves having to play digital catch up with their investor counterparts.
General partners (GPs), who manage private funds and allocate capital invested by limited partners (LPs) have found themselves technologically behind the curve as institutional investors plough into the once-niche markets.
But because LPs are often larger asset managers that digitalised long ago as technology took hold of public markets, their mature data processes are helping to narrow the gap and drive digitalisation among their counterparts.
It’s a trend that Clément Miglietti, chief technology and product officer at data management software provider NeoXam has seen develop rapidly.
“There is always a lag in our industry,” Miglietti told Data Management Insight. “Historically, you have a certain category of players that develop new technologies first – the capital markets and the sophisticated investors on the buy side. Now you have LPs and GPs, who are [lagging behind] because they needed it a little bit less.”Transforming Manually Driven Workflows
Traditionally investors, who have tended to be larger companies, have needed to be at the vanguard of technology because their trading demands have been greater, Miglietti said. They have run multi-asset operations for many years and are accustomed to technology taking the burden o workflows. GPs, on the other hand, have until recently operated in a less urgent environment, where data has been passed between participants in hard copy form and managed on spreadsheets.
But with institutions leading a wave of capital allocation into private markets that has grown to about US$15 trillion, according to Preqin and the Bank of England, GPs have by necessity begun sharpening their tech talents.
“Now they are digitalising their investor experience, so reporting, onboarding, and also their data infrastructure,” Miglietti said. “I see people trying to industrialise the way they do stuff – that’s for the whole data value chain.”
Investors have been increasing their allocation to private markets – including private equity and credit as well as hedge funds and property – as uncertainty over monetary policy, geopolitics and trade have encouraged them to diversify their investment theses.
Also, the higher returns offered in the private space has drawn in institutions, who have sunk about a third of their capital into such funds. That’s set off a snowball effect as investors have been drawn to the rising liquidity in once-illiquid markets.
Data-Savvy Investors Expect More from GPs
The presence of companies used to the standardised operations of public markets has presented the private spaces with a dilemma; as regulated organisations, they require transparency into their investments. Until recently, that level of look-through has not been available from GPs.
That’s partly been because of the unique nature of private markets. The data is often incomplete, locked into fragmented infrastructure and largely unstructured. As well, the investment practices within those markets makes integration of that data into institutions’ system difficult; assets are often held for longer, transactions are multi-phased and, like the required accounting, is far more complexed. Similarly, reporting is less regulated and often bespoke.Technology, and in particular artificial intelligence, is changing that, said Miglietti.
“Those areas are actually being fixed by technology,” he said. “That data comes not through standard feeds or channels but nowadays it’s not necessarily a problem because we have AI to allow for that. It’s the same thing for reporting; AI is making bespoke reporting much less costly.”
Data Management Processes Taking a Central Role
The change is greatest for GPs, he added, who are beginning to embrace intelligence document processing and adopting sophisticated data management practices.
“Data is becoming more plentiful and therefore participants are trying to organise their data management, he said. “We’re seeing that that space maturing.”
Such firms are adopting mature data integration tools “to automatically process some data that was processed manually”, he added. “The pure data management, data custody, is being organised in a more robust way, like the asset management industry has been doing for the past, let’s say, 10, 15 years.
“Now the private markets are adopting the same type of approach, which is sometimes actually more complicated because the asset classes are less standard.”
NeoXam has been swift to leverage its pubic-markets expertise to offer data and technology products and services to the private space. It has introduced an intelligent data processing tool that automates the integration of of data into participants’ systems.
By adapting its existing solutions with the inclusion to specific data models and business workflows tailored for private assets, it is enabling clients to achieve a total portfolio view that consolidates public and private data, Miglietti said.
That also includes tweaking capabilities for private market clients to report at scale.
“We’re trying to blur the line between the private market and the public market from an investor perspective, from an investor experience,” he said.
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