The private capital market is in the midst of exceptional in-flows, attracting significant investments of capital towards alternative asset classes such as private equity, private debt, and private real estate. This remarkable growth is propelled by several key factors. Investors, aiming to strengthen their portfolios, are increasingly turning to these asset classes as effective hedges against the volatility found in stock and bond markets. On the other hand, private capital firms are driving this growth as they seek to enhance their top lines and remain competitive in an intensifying landscape. They are strategically targeting new types of investors, penetrating different jurisdictions, and diversifying their product suites.
This two-pronged push — from both investors seeking lucrative, stable opportunities and private capital firms aiming for growth and competitiveness — has also given rise to a challenging issue: data management.
Data management remains a top concern
The struggle to manage a torrent of data has emerged as a top concern for General Partners. In a recent report by Intertrust Group titled the HALO framework, data management emerged as a leading technology-related challenge, with more than half of the 150 leading private capital firms surveyed (53%) citing it among their top three issues.
Data silos, comfort with spreadsheet based manual processes, legacy symptoms, added compliance and security issues, labour shortages and the lack of capacity to develop strong transformation strategies are various factors identified to be inhibiting the adoption of next generation technologies in the private capital industry.
Gone are the days of presenting simple PDF reports highlighting fund and portfolio company information. With the rising allocation of investor funds, private equity firms are expected to deliver detailed insights into portfolio companies’ operating performance, and an extensive range of strategies across diverse asset classes.
The sheer volume of data that needs to be managed is monumental, with the sources of this data widely fragmented – spreadsheets, emails, accounting systems, and CRM platforms, just to name a few.
Additionally, private capital investing entails the aggregation and normalisation of data from a myriad of portfolio companies into a single location, making the process even more complex.
75% of respondents in the HALO framework research have highlighted the inability to consolidate siloed data systems as a major business challenge.
The manual approach to data management through spreadsheets and workflow via emails takes a long time to deliver even basic information to investments.
In a 2023 study of private markets by State Street, more than 50% of respondents believe they waste a considerable amount of time and resources dealing with data because of manual processes and outdated systems. There’s an increased realisation that scaling up across portfolio could be harder if the data management technology can’t keep up additional demands for information.
Private capital market firms are also suffering from a lack of data accuracy and reliability. Part of that problem is the resource intensive nature of operations that could make the analysis error prone.
The pressure to incorporate ESG factors and adapt to evolving regulations like the EU’s DORA, AIFMDII, and MiFID II Compliance, alongside shifts introduced by bodies such as the US Securities and Exchange Commission, only add to these challenges.
Labour shortage is also a challenge. When companies increase their proficiency in private markets, they prioritise the addition and development of investment professionals before other areas of the business such as operations, finance, and additional support roles. It’s commonly recognised that there’s a prevailing manpower scarcity that has been aggravated by the sector’s expansion.
Lack of capacity to develop data transformation strategies
The issues with data in private markets aren’t unfamiliar. It’s tempting to maintain the existing norms and to implement swift remedies to outdated procedures. Within the private markets domain, organisations have favoured creating point solutions to satisfy urgent LP needs or comply with imminent deadlines. As the private markets change, these solutions prove insufficient in offering a comprehensive approach.
Only 40% of the HALO framework participants think their data management skills are equipped to handle the present needs of the private markets environment.
Third party data management tools unlock significant efficiency gains
Most respondents from the HALO framework (59%) have accepted that data management and analysis capabilities have become an important competitive advantage, and more than half (53%) are allocating 20 percent or more of their technology budgets to private markets operations.
Investing in the right technology and data management systems will provide organisations with an edge. Private capital firms can continue to realise the benefits – in returns and diversification – that a private markets allocation can bring to a portfolio.
Large institutions with in-house technology departments have traditionally opted for an in-house system. However, it is later that they realise the additional cost of maintenance, compliance, cybers security etc. which creates a dent in their ROI calculations. Anyone still considering in-house technology must seriously think through potential costs and benefits before finalising their approach.
“Historically, private capital firms have preferred to build technology solutions in house. Lately, there has been a shift toward buying (such solutions) and/or partnering (with third party providers). Firms are not only buying the best-in-class solution for a particular activity or function, but they’re buying solutions that integrate well with the existing architecture.”
Head of technology and operations, global investment manager specialising in alternative investments with US$160 billion of AUM, HALO framework.
So, the solution? Data agnostic SaaS platforms built for asset managers by experts who understand the data itself.
A traditional software as a service partnership focused on leveraging controls to automate the data management process can free managers from time intensive tasks and provide quicker access to data through advanced software technology.
Modern data solutions can effortlessly handle lower-value tasks such as data collection, aggregation, and storage, which allows private market firms to continue to focus on their core business.
Choosing the right data management partner will bring about significant cost savings, efficiency gains, and access to specialised skills and advanced technology.
The ideal partner should also align culturally with the firm, have a strong understand of the industry and its complex regulations, while offering a range of scalable services that meet the company’s evolving needs.
In this increasingly complex private capital market, firms need to recalibrate their operational strategies. By adopting systems and processes tailored to their specific needs and automating data management, private equity firms can unlock their full potential and remain competitive.
Fundipedia can help
Fundipedia addresses these issues with a unique approach.
Our platform provides a flexible data model that can be applied across a range of financial products, asset classes, and investment vehicles, catering to both open-ended liquid funds and closed-end vehicles.
We work closely with clients to understand their ideal top-down data model, integrating unique data objects and creating a customised data model to align with their specific needs. Our approach promotes data normalisation and standardisation, enhancing data accuracy and reducing redundancy.
Our platform’s adaptability allows for modification of existing data and creation of new fields specific to products. Clients can take advantage of Fundipedia’s robust integration capabilities and automated data capture.
It connects seamlessly with both upstream and downstream data sources, significantly easing the management of data from multiple sources. It focuses on streamlining data collection, eliminating potential bottlenecks and fostering an efficient data flow. Once data is collected and stored, it becomes readily accessible to business users across the organisation.
Fundipedia offers the flexible data structure and seamless integration capabilities to ensure a robust grasp of complex data landscape that private market data management needs.