There is still considerable interest in private market investing, a term covering areas such as venture capital through to forms of infrastructure. To achieve continued growth, a common approach to data – and measuring results – is needed, the author of this article contends.

Family offices, wealth managers, private banks and others are regularly regaled about the merits of private markets and their premium for illiquidity. This trend has seen the rise of fintech platforms such as iCapital, CAIS and Moonfare which are widening access and efficiency. Global equity markets’ value was estimated at $124 trillion for 2021 versus $10 trillion for private markets, according to consultants McKinsey and SIFMA, aka The Securities Industry and Financial Markets Association (source: Connection Capital). Preqin, the research firm, has predicted that private market assets under management will reach $24 trillion in 2026.

It’s therefore unsurprising that the term “private markets” has become as ever-present as “ESG” or “AI” in private banking and wealth management conversations. To push the dialogue further is Aman Soni, vice president of data strategy at Canoe Intelligence. Canoe is a US-based financial technology company powering alternative investment intelligence. In early May, it expanded further into the Europe, Middle East and Africa (EMEA) market by opening its London office.

The editors are pleased to share Soni’s views with readers and invite replies. The usual disclaimers apply. Email tom.burroughes@wealthbriefing.com

Private markets are on the cusp of a revolution. Increasing allocations into the private market have grabbed headlines – driven by historic low rates during the pandemic followed by vast amounts of dry powder set to be deployed. Yet, despite so much attention, private markets have a fundamental problem: their opacity.

Private markets are well-documented but accurately gauging the performance of the industry and its underlying assets beyond ‘finger in the air’ assessments has been near impossible. This, however, could be about to change. Technological breakthroughs in extracting private market investment data, shifting attitudes towards transparency, and the spectre of tighter regulation have opened the door to the prospect of greater standardisation.

Joining the dots and giving the industry a clear path to data standardisation is an ambitious target. Unstructured data documenting the diverse plethora of private market assets spread across a variety of often hard-to-access formats – from Excel sheets to PDFs and emails – has historically made achieving this vision a major challenge at scale. However, using new technology, we are now able to automate the collection, extraction, and normalisation of data, lifting the data burden from managers and taking a major step towards standardisation.

Progress through transparency
The benefits of standardisation are not limited to those on the outside looking in. For managers themselves there is a significant upside – opening opportunities to improve market function, enticing new investment, and building more transparent analytics. The market has historically been hard to decipher, even for those operating within it. Fund aliases, for example, are fragmented across data providers, especially as static data like GICS (Global Industry Classification Standard) are applied inconsistently. This creates industry-wide confusion in identifying comparable funds and performing top-down exposure analysis. This is even before delving deeper into the actual performance of funds on a named basis – increasing the sense of mystery in private markets.

A more standardised approach to private market data would give way to more sophisticated and useful identifiers that could eventually form comprehensive benchmarks – single sources of truth that will allow the industry to compare fees and performance. This is important at a time when allocators are increasingly conscious of how savers’ money is invested. Whether highlighting ESG credentials, fees, or performance, data needs to be standardised, validated, and universally available across all funds from inception.

The industry already has access to the tools needed to shine a light on private markets. While a single source of truth for private market investment data may be some way off, early movers improving their data transparency will stand out from the crowd. Firms that show their hand and lead the change will create better standards in private markets but will also entice allocators wary of the historic opacity of the market. As one domino topples, others will follow for fear of being left behind or being perceived as having something to hide.

As well as demand from allocators and the promise of a more competitive, functional marketplace, the inevitability of regulation is another crucial factor that will accelerate data standardisation. We have seen the regulatory net closing in recent years with Solvency II coming into play – requiring greater transparency around private assets. As allocations continue to grow, we can expect regulation to tighten even further.

Pre-empting the inevitability of greater scrutiny will pay dividends. Public markets have long grappled with questions of effective regulatory reporting despite being more liquid, with greater access to data – private markets will soon face the same conundrum. Marshalling huge swathes of existing data and implementing reporting infrastructure, is a huge undertaking that cannot be left until the last minute.

Driving the leap forward
Central to the success of standardisation is consistent mass adoption. This should not be seen as a chore as the benefits of moving towards widely available, standardised data are vast. Lifting the lid on the asset class will attract new audiences and boost competition by giving managers a credible platform to demonstrate good practice and strong performance. 

The tools to make this vision a reality are already at managers’ fingertips. While managers are not yet mandated to report their data at an agreed-upon frequency for prescribed metrics, there is a significant incentive for private market participants to drive change. As attitudes towards transparency shift in private markets, we can expect the momentum behind the data revolution to grow. It is up to the industry to lead the charge and seize the opportunity by proactively driving the transition to more transparent private markets.