Many investment firms are increasing their allocation into private markets assets. However, these asset classes are typically defined by unstructured data, lack of standardisation and manual processes — all of which makes managing them a significant challenge. Exactly how to manage portfolios that have a mix of structured and unstructured assets is a regular topic of discussion between funds around the world as they struggle to find a solution.

At our recent State Street Growth Summit, we discussed how firms are reviewing their operating models to build the functionality that will accommodate different asset classes. They’re looking for function, support and efficiencies, and they’re evaluating their partners to ensure they have the right fit.

However, it’s a highly complex task with many different channels and functions to integrate and support, and the implementation costs can be significant. Organisations are weighing options with regard to what they can build and manage in-house, and with whom they can partner to bring in functionality that works alongside their existing systems.

In our discussions around revamping operating models to support private markets assets, firms listed these complexities and considerations as top of mind.
 

Importance of a “whole-of-fund” view

Selecting an operating model that ably supports the investments team is naturally dependent on the investment type. As private markets holdings grow, institutions need to be able to view and analyse their exposure in the same way they analyse their public asset holdings. A quarter of respondents from our third annual private markets survey indicated that gaining a “whole-of-fund” view would be transformational for their private markets operations. This demand is leading institutions to challenge traditional obstacles to getting accurate and timely portfolio- and holdings-level data for private assets.
 

Operational support

Structurally, the challenge goes beyond accommodating a range of different asset classes. Every time an investment is made, it impacts functional requirements, which indicates that additional operational support is needed. Any solution must manage and account for that complexity. Additionally, we’re seeing firms evaluate whether pivoting from a multi-vendor partnership structure to a more streamlined one is an appropriate model for their fund in the long term.
 

Valuations

Firms are seeking a transparent, secure and more efficient valuation process, and regulation is putting pressure on firms to prove they are managing their valuations accurately. Post-investment, they need the ability to adjust valuations, whether from a General Partner, a model or other source. Additionally, they must be able to review, approve and feed the valuation into the broader fund to have visibility across public and private markets.
 

Risk

Risk is always a key consideration for asset managers, and tracking the risk associated with private markets investments is no different. Using credit as an example, firms need to look across their entire credit portfolio – which may contain liquid or illiquid assets – to get a complete view of default rates. They need to drill down into the direct lending portfolio to see the underlying borrowers and covenants. This process is made even more demanding with public and private assets in the portfolio, and is another factor to consider when designing your operating model.
 

Quantity of data

One of the most common reasons firms seek new operating models stems from the realisation that the breadth of data they are presently holding will only increase. Many firms have large volumes of unstructured data stored in Excel worksheets, which becomes harder to manage as they scale, particularly when shifting from asset view to enterprise view.

While it’s a given for now that organisations will continue to hold data in Excel and PDF formats, it’s clear that this is not a viable long-term option. Data ingestion, validation, storage and access from multiple sources is not scalable in Excel and creates vulnerabilities in portfolio and operational risk. Additionally, continuing to rely on large teams of people to manage increasing volumes of data is unsustainable.

To better manage data, firms are looking at platform solutions with an intelligent data management function that can leverage Excel and PDFs at scale. These data platforms offer flexibility and interoperability, which makes them an attractive option.

Teams also welcome the time saved from automating manual processes, and with functions that use artificial intelligence, they can now wipe days and weeks off analysis and processing times. They are also appreciative of the ability to tap into a single source of truth across the enterprise as it streamlines comparisons and analysis, allowing them to respond to detailed regulatory requirements swiftly and with ease.

What’s more? 

As funds grow and evolve, intelligent data platforms can grow and scale with them. You can learn more about this topic in our 2024 Private Markets study, which explores key developments in data and technology for private markets and a video interview with Alex Popp, global head of Sales for Private Markets, Charles River Development and Doug Talbot, managing director, 1886 Consulting.