Developing Comprehensive Insights Across Private Markets Funds
May 15, 2024
Read Time: 11 minutes
Data Management
Jyoti OrphanidesVice President, Head of Technical Content, Product Marketing
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Elevated interest in private markets is not waning anytime soon. The alternative investments space continues to attract investors in pursuit of alpha and diversification. According to Preqin, assets under management in private markets are expected to grow by nearly 13 percent annually to US $12 trillion by 2025.1
However, growth also comes with its own set challenges pertaining to data, operations, and developing comprehensive insights across private markets funds and investments. Disparate data from multiple sources – as well as data derived and accumulated over time from investments, transactions, statements, and research – requires collection, consolidation, and cleansing. Making mounds of data operationally usable, organizationally accessible, and analytically meaningful is a more pressing point. Private markets funds need to be able to comprehend data and metrics to measure performance, identify drivers and investment trends, benchmark against peers, and generate various reporting for their stakeholders across deals, funds, and investors. Addressing these challenges requires a combination of data management practices, technology, and organizational capabilities.
In the realm of private markets, fund managers and investment firms struggle with effectively harnessing vast volumes of data from numerous sources. To gain a competitive edge and make informed investment decisions, it is crucial to develop comprehensive insights across private markets funds. And this all begins with data.
Private markets fund managers deal with a wide range of data, including financial statements, investor reports, deal flows, investment transactions, market research, and performance metrics. These datasets are often highly fragmented and reside in different formats and structures, making it difficult to consolidate and analyze effectively. Data integration and normalization challenges can hinder the ability to develop a comprehensive view of the fund’s operations and make data-driven decisions. Each information source has its own unique data structure, naming conventions, and units of measurement. To derive meaningful insights, it is vital to harmonize the data to ensure consistency across all datasets.
Ensuring data quality and accuracy is a critical issue. Data may contain errors, inconsistencies, or gaps, severely impacting the reliability of insights derived from it. Manual data entry and processes dominate operational practices across many alternative investment firms today. Reliance on external data providers, and limited data validation procedures contribute to data quality issues. Without reliable data, it becomes difficult to develop true and meaningful insights.
Participating in private markets involves diverse investment strategies, asset classes, deals, and capital activity, presenting a lack of standardization that poses challenges with data collection, reporting, and analysis. Funds need to deal with different data formats, terminology, and reporting templates across various investment types. This heterogeneity makes it tricky to compare and aggregate data consistently, hindering the development of comprehensive insights and the ability to make sound investment decisions, observe trends, and seize opportunities.
Private markets funds often face complex operational processes due to the nature of their investments. Managing multiple funds, deal structures, investor communications, and regulatory compliance can be intricate and time-consuming. Handling ad hoc requests from stakeholders for reports or deal information can be chaotic due to a lack of workflow infrastructure and unorganized data which only increases the time and effort needed to meet these demands. The complexity of daily operations can divert resources from data management and analysis, limiting the ability to develop a thorough understanding of investment and performance data.
As funds grow and investments increase, so does the associated capital activity and treasury management, placing undue pressure on operations staff. Some funds divide teams to work on the different processes for the same fund. This inadvertently creates cross-functional inefficiencies and redundancies through potential duplication of tasks and data; wherein it would be much more effective for the same team to execute end-to-end tasks pertaining to a particular fund.
Without technology in place to manage workflows, automate the tracking and generation of capital calls, distributions, and facilitate movement of money between accounts, the manual effort is heavy; yet it requires the utmost accuracy in dealing with cash and to ensure critical transactions are executed on time.
As funds grow and managers diversify their investment strategies, scalability and flexibility become significant factors. Existing data management systems and processes may struggle to handle increasing data volumes, complex reporting requirements, or new investment structures. Scaling data infrastructure, adapting operational processes, and integrating new data sources present challenges that need to be addressed.
For instance, some funds are simply unable to effectively monitor portfolio performance consistently and with confidence. Monitoring the performance and risk exposure of private markets portfolios is essential for fund managers. However, with much of the performance calculations being performed manually in spreadsheets, it is increasingly difficult to attain a comprehensive view of performance across investments and portfolios.
So, how does one establish a “proper” middle and back office in a private credit investment institution? And what does “good” look like? It’s a topic we explore in more detail in in our webinar, Reaching for the Operational North Star in Private Credit Investment Portfolios.
Cyclical fund and investor reporting, such as quarterly updates, already consumes the bulk of available time to meet reporting requirements for stakeholders. Manual processes eat away at much of the workday leaving little for generating other insights and reports for investors, regulators, and senior management.
Organizing and deciphering data is laborious, and susceptible to errors, leaving little for strategic initiatives, such as observing trends, developing products, attracting new investors, and raising capital. Manual operations compromise data accuracy, integrity, and security – in the absence of systemized authentication controls. However, some funds have found ways to digitize most of these manual, time-consuming processes.
Across a rapidly changing private markets landscape, fund managers continue to seek innovative ways to streamline operations, enhance reporting, and derive actionable insights from diverse data sources. As the complexity and volume of data grow, traditional methods such as manual workflows and managing data across multiple spreadsheets become increasingly inefficient and error prone.
Moving out of Excel, for example, and into a purpose-built investment operations platform for core data organization, equips managers with access to a complete view of their private markets funds by aggregating and normalizing data from various sources. This allows fund managers to perform sophisticated analyses and gain insights into fund performance, risk exposure, and portfolio diversification. Armed with accurate and timely information, fund managers can make informed investment decisions, identify emerging trends, and seize lucrative opportunities.
Funds might lack in-house data analytics expertise or dedicated resources to leverage data effectively. Analyzing large datasets, implementing advanced analytics techniques, or developing comprehensive insights require specialized skills and tools. Without the necessary expertise, funds may struggle to extract meaningful insights from their data, limiting their ability to drive informed decision-making.
With broad coverage and insights, derived from a combined view of investments and operations, and supported by sophisticated investment tools, private markets professionals can optimize data operations, and automate report generation to meet the ever-evolving reporting requirements of stakeholders. By consolidating data in a single location, fund managers can derive holistic insights that were previously fragmented and time-consuming to obtain, and leverage these to produce detailed reporting to fulfil multiple investor and regulatory needs.
Access to granular data that underlie investments enable comprehensive analysis into performance, risk, and supports benchmarking. Configurable views and dynamic dashboards can enhance fund and performance monitoring by offering the ability to observe performance across funds. Investment teams can perform intricate analysis by interactive drill through from portfolio to investment to underlying deals, transactions, and capital activity. This not only optimizes efficiency cross-functionally, but vastly enhances the performance and risk monitoring capabilities for private markets funds.
Net asset value (NAV) oversight and reconciliation is often a burdensome periodic undertaking where finance and operations teams spend numerous hours carrying out manual tasks to verify fund NAV, sometimes across multiple administrators. With cleansed and organized data, much of the NAV oversight process can be automated by adopting purpose-built workflow technology, drastically reducing the effort and risk in manual execution.
Almost 80% of investors are looking for a centralized, accessible platform for public and private asset data, as the current lack of availability, accuracy, and timeliness of data is an overlooked aspect of private markets.2 Advancements in technology have led to a proliferation of data management systems and platforms specifically for the investment industry. These systems are designed to help fund managers address and solve the various challenges in managing data and alleviating administrative burdens that currently distress many players within the private markets space.
A data management solution or platform streamlines the data aggregation process by automatically collecting, normalizing, and organizing data from various sources, eliminating manual efforts, and reducing the risk of errors. Such solutions apply data transformation techniques like data standardization, data cleansing, and data enrichment to harmonize the information. This normalization process enables fund managers to maintain data consistently, compare and analyze data accurately, and facilitates optimized operations through systemized workflows – all leading to better decision-making.
Key features and benefits of implementing a data management solution in private markets include the following:
Integrated data can be derived from disparate sources, ensuring consistency and accuracy. A data normalization process not only streamlines data management but also ensures that all stakeholders have access to reliable and comparable datasets.
With a centralized data repository, generating comprehensive reports for different stakeholders becomes more manageable. Whether it’s for regulatory bodies, investors, or management, fund managers can automate and customize reporting, hence reducing manual efforts and improving compliance.
By minimizing reliance on manual processes such as spreadsheets, data management solutions reduce the risk of human error and free up valuable time for fund managers to focus on strategic decision-making rather than data entry or error correction.
Modern data management solutions are becoming more equipped with analytical tools that can perform complex calculations and predictive analytics, providing fund managers with deeper insights into portfolio performance, risk assessment, and investment opportunities.
As funds grow, so does the volume of data. Cloud-based data management solutions are scalable and capable of handling increased data loads without performance degradation. Moreover, they are adaptable to new data sources and evolving business needs.
To keep pace with the continued acceleration of the private markets’ investment domain, it is imperative for fund managers to consider implementing a data management strategy and optimize their operations by leveraging advancements in available technologies. A data management platform purpose-built for the investment industry such as Arcesium’s Financial Data Stack can swiftly turnaround an investment firm’s operations to alleviate many of the operational challenges they face today – from integrating multiple data sources, maintaining the data for completeness and accuracy, to developing comprehensive insights to optimally monitor performance and risk across their portfolios. Regulatory reporting requirements are becoming more rigorous, investors and clients demand more transparency, and internal management want more oversight and efficiency across investment operations.
As well as having a complete view across funds and portfolio data, capabilities to dive into the granular details of investments underlying deals, and associated transactions, helps fund managers make more informed decisions. Workflow tools to dynamically interact with fund data, perform multi-admin fund NAV oversight, and track capital activity, significantly enhances a firm’s investment operations. By developing a strategy for overcoming data and operational burdens, managers organically derive consistent access to accurate and comprehensive insights across private markets funds. Through this, they are setting themselves up for success as they raise capital, enter new asset classes, and go-to-market with new funds.
In the dynamic and data-driven environment of private markets, the ability to harness comprehensive insights is crucial for fund managers and investment firms. A data management platform acts as a game-changer, enabling the aggregation and normalization of diverse datasets from various sources. By leveraging a data management solution, private markets professionals can unlock actionable insights, enhance decision-making, ensure compliance, and strengthen reporting capabilities. As the private markets landscape continues to evolve, harnessing the power of data will be a key differentiator for success.
For private markets fund managers and investment firms, the adoption of a data management platform is no longer just an operational choice but a strategic necessity. By leveraging a comprehensive solution firms can overcome the challenges of data diversity and complexity, enhance their reporting capabilities, and streamline operations. This not only leads to improved stakeholder satisfaction but also provides a competitive edge in the increasingly data-driven world of private markets investments. Implementing a data management solution can transform the landscape of private markets operations, turning data challenges into opportunities for growth and innovation.
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