Mapping the territory of private market investing can be difficult, but the rewards for capturing how well the whole sector performs can be important when helping to set asset allocation. We talk to MSCI and its wealth-focused side about developments.

When MSCI, which provides investment indices, launched MSCI Private Capital Indexes in July this year, the move highlighted how this organization says it relentlessly captures themes that wealth managers want to tap into. 

Private market investing – venture capital, private credit and equity, among others – are hot topics for those advising high net worth clients. The secular shift from listed equities to unquoted businesses in the past 25 years has fueled demand for data on how well these often opaque areas perform and compare with listed stocks and bonds. 

And MSCI’s move – launching 130 indices in all – shows how the institution wants to put tools in the hands of wealth management decision-makers who are hungry for information, argues Alex Kokolis (pictured), global head of wealth at MSCI. He has worked at MSCI for five years, and before this, at UBS, Wilmington Trust and Merrill Lynch.

“An important driver behind the launch of the MSCI Private Capital Indexes is building a new ‘common language’ around private assets across the investment ecosystem, and understanding the factors that run through a variety of companies regardless of whether they are publicly listed or not,” Kokolis told this publication. “When stress-testing a firm’s financial and business prospects, having such a common language helps to make meaningful comparisons.” 

Alex Kokolis

The need for more information on private assets has been a theme across the wealth management industry, and the investment industry at large, he said. 

“Institutional investors are increasingly looking to private assets to help meet their investment mandates. In the wealth space, this trend underscores the need for education and democratization of private assets. The overall growth in investors’ private asset allocations increases demand for transparency, insights and analytics,” he said. 

Considering how inclusion in a MSCI index, such as the flagship World and Emerging Market indices, can have a material impact on share prices and asset allocations, the move into the private markets area is significant. Just as ESG investing has spawned a raft of new indices, now it’s the turn of private markets. As soon as new indices spring up, they can then be used as building blocks for entities such as exchange-traded funds, for example.

The recently-launched MSCI private market indexes are constructed from private capital funds with over $11 trillion in capitalization.

Comparisons
Comparing returns from listed equities, which can be traded in seconds on electronic exchanges, with those from venture capital, where time horizons tend to be measured, carries difficulties. Plenty of caveats are needed when comparing stocks’ returns with the internal rates of return (IRR) measures that go with private assets. That said, some yardsticks are better than none, and the sophistication of the investment world is evolving fast. Firms such as Preqin (now owned by BlackRock) also issue indices for private markets.

(Preqin Private Capital Indices are time-weighted return indices that capture returns worth over $11.3 trillion in market capitalization and are updated every three months.) S&P has a listed private equity index; funds tracker Morningstar examines the performance of private startups with a value of $1 billion or more via its Morningstar PitchBook Global Unicorn Indexes. 

Kokolis said MSCI’s client base of wealth managers, asset owners, asset managers, banks, hedge funds, insurance firms and others have growing needs for private asset insights, standards, and decision tools. 

“The solutions that MSCI is bringing out is an important addition to its work in the wealth management space – not a satellite add-on. This is about how advisors can tell the right story to investors. We are having more engaged conversations with our wealth management clients,” he said. 

This publication asked Kokolis about the MSCI Wealth side of the organization. 

Offerings include MSCI Wealth Manager (formerly known as Fabric – a wealth technology firm MSCI acquired last year). This allows investment teams and advisors to personalize client portfolios while keeping to a house view via MSCI’s proprietary Similarity Score. 

Kokolis argues that MSCI data strengthens a wealth advisor’s value proposition by helping them prepare meaningful investment proposals that capture the total client portfolio.  

“It is no longer enough for advisors to only provide clients access to areas of the market, such as alternative/private investments. They need to show how they fit into the client’s total financial picture,” he said.