The Private Capital Markets Toolkit

How data infrastructure can expediate decision-making

Modern data infrastructure can help speed up private capital’s journey to the center of capital markets, says Cesar Estrada, Private Markets Segment Head at Arcesium.

What are the private market conditions for which a toolkit is needed?

As we continue to operate in an environment of macro uncertainty — elevated interest rates, looming recession, geopolitical tensions, and an election year — different dynamics are playing out in private markets. Private credit remains the fastest growing segment as firms explore new geographies and asset classes, expand into unsponsored deals, and take share from the broadly syndicated loan market. Demand for secondaries also continues as GPs and LPs seek liquidity solutions. Lastly, private fund managers are increasingly tapping different forms of permanent capital and large firms continue to acquire smaller specialist firms. To manage the complexities of a changing market, modern data infrastructure brings data together and supports nimbler decision-making.

When it comes to private capital and data infrastructure, which lessons learned from the Global Financial Crisis (GFC) are still valid today?

What sticks out most for me is correlation within public capital markets tends to accentuate in periods of crisis, such as the GFC. Often, the result is bigger market swings than in the private capital markets, where illiquidity and more fundamentally driven valuations can make things smoother. Lower volatility gives all parties — LPs, GPs, and management teams — more elbow room to stay the course as they execute their strategies. Secondly, and why this matters today, as private capital becomes a more meaningful proportion of the capital markets, investment, investor, and fund data will continue to grow at a much faster rate. This anticipated data acceleration, again, points to the need for better data infrastructure tailored to private markets.

Where there is demand, there is often also friction. How do you address this?

Firms need technology that supports data governance and a unified data platform to scale analytical and reporting activities — without adding headcount. Assuming the technology can flexibly support business use cases front to back, and is capable of self-service by business and technical users alike, how you use it separates the good from the great. Firms like Arcesium deliver modern cloud-based technology that understands private capital markets so that fund managers can focus on using systems in ways that help them differentiate.

On friction, I would start by speaking directly to GPs with a simple point: the way you’ve been running reporting and analytics to support internal and external stakeholders (LPs and regulators) will not scale as you seek to double AUM over the next several years. It’s also important to recognize friction and complexity will emerge on the way to your target state. The key is maintaining discipline to see the adoption of new technology through to fruition.

How do you approach this?

Experience shows a clear way: give users what they want. Private markets professionals have different preferences about how they want to consume and interact with data. Some managers like ready-to-use dashboards, others prefer to build their own using a BI tool of their choice, and some want their Excel spreadsheet. Giving users the data the way they want it, ideally from a single unified source, also speeds up adoption.

Secondly, don’t rush. A ‘baby steps’ approach tackling one business use case at a time helps create the momentum necessary to execute a data strategy successfully. Big-bang projects and disrupting current tech stacks are not a must.

All these innovations are exciting parts of a private capital toolkit that will open the alternatives door for more participants and speed up its evolution. We’re working toward a future where data, technology, and decision-making are seamless components of daily work.

Watch our on-demand webinar featuring experts from Churchill Asset Management, Blue Owl, and Lionpoint Group to uncover the North Star in private credit and explore Arcesium's solutions to your most pressing operational challenges.

_{This article originally appeared in Private Equity Q1 2024: Preqin Quarterly Update.}