A Process-Driven Approach for Today’s Data-Driven Landscape
March 25, 2024
Read Time: 7 minutes
Private Markets
Lael WakefieldSenior Vice President, Business Development
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The new reality for many companies is that nearly all knowledge and expertise are stored, and called upon, as data. Innovation resides in how well that organization can absorb, consolidate, manipulate, and analyze massive amounts of data from diverse sources over the lifecycle of an investment.
A firm’s ability to receive, store, process, and analyze varied data is what makes the information coming from various sources useable. As a result, data management — which includes high-speed performance, state-of-the-art technology with a team that understands it, assurance of trustworthy data, and effective risk management — is now fundamental to business success. This transformation, with technology at the heart of value creation, has played out across all business sectors, including sophisticated global financial institutions such as banks, hedge funds, and private markets.
Benefitting from analysis of huge amounts of data, the private markets, comprised of private equity and private credit, has achieved exceptional performance and growth in recent years. The growth in AUM has increased close to 20% per annum since 2018, bringing private markets to an impressive $13.1 trillion in assets under management, as of June 30, 2023.1
While recent challenges — instability in interest rates and the macroeconomic environment, fundraising hurdles, and the persistence of the “denominator effect” — have dampened private markets activity and added pressure to performance, opportunistic credit investments remain as does fierce competition. In the Private Funds CFO Insights Survey 2024, 61% of responding CFOs anticipated growth in income and headcount in the two-year period ahead.2 In that same survey, trailing a tough fundraising environment and the macroeconomic climate, CFOs cited portfolio management and performance, talent acquisition and retention, and operational infrastructure and systems as top challenges in scaling up their firms.
While dealing with an influx of data should signal the need for a nuanced data management platform, some private market firms have sought less holistic solutions. Though data-driven and data-focused, they may be still managing massive amounts of critical information through Excel-based or other labor-intensive processes. Meanwhile, these systems, over time, have become burdensome to maintain — chewing up staff, time, and funds — while not being scalable. Data storage may also not be on a single platform, much less cloud based, posing additional obstacles.
This reality is reflected in our conversations with C-suite leadership in private markets, who describe internal business challenges stemming from technological choices and concerns about their company’s resilience and ability to respond to opportunity.
Regardless of their company’s size and AUM, corporate leaders echoed these themes:
As key leaders in driving change in their companies, they also understand what failure to implement appropriate solutions may look like. While cautious adoption of technology may be rooted in firm-specific causes,3 the need to meet today’s demands for data functionality, connectivity, and security has exposed potential crises ahead. Here are some of the key concerns executives shared with us:
Sophisticated financial services segments — institutional asset managers, hedge funds, and private market enterprises, for example — have very particular data management requirements as a result of how they do business. The overall goal, however, is to ensure that diverse data can be accessed efficiently, reliably, and with speed.
Here are some of the characteristics of private market GPs that are driving data management needs and considerations
Decision-making around data management platforms is as complex and distinctive as the business itself. How do you know whether your company’s infrastructure has the capabilities you need to be resilient in today’s marketplace?
Here are some performance-based indicators:
To mitigate these issues and foster the implementation of a nuanced data management strategy, our professionals have defined a five-pillar approach that outlines the essentials of an effective data management system for the private markets domain:
Challenge: The accelerated cadence of reporting was swamping resources for a public and private investments company. Lack of speed and easy access to relevant data were impeding their ability to fulfill reporting requirements and support thoughtful decision-making.
Solution: Leveraging Arcesium’s data platfrom, AquataTM, the company gained the tools it needed to receive, organize, and validate volumes of data from disparate sources. They attained the ability to create analytics, including investor- and investment-driven analytics, with speed and accuracy, from the broad view to the granular level.
Market benefit: Staff no longer needed to clock extraordinary hours to clean data or generate reporting. Transitioning to new technology generated significant expense and operational efficiencies, as well as enhanced due diligence processes.
READ THE FULL CASE STUDY: Improving the Private Markets Investor Experience
Big ideas depend on big data, including knowing how to harness it when opportunities arise. Firms must ensure their data management strategy prepares them for key ventures and also enables their business to adjust to changing conditions in a way that continually uses data to their advantage.
Every company has to determine how the technology side of their business works. Many factors are at play, including financing, timeline for change, current practices, business projections, and risk-reward calculations, which include decisions about data security and long-term performance capabilities.
Arcesium understands these complex challenges and complex decisions. Our platform and toolsets are designed especially to serve the needs of sophisticated companies whose products and strategies are heavily data-dependent and data-driven. From collection and consolidation, to security and analysis, our solutions support the full spectrum of data management needs, recognizing that business success resides in timely, dependable, and differentiating analysis.
Sources:
1 Private Markets: A Slower Era, McKinsey & Company, February, 20, 2024
2 Insights Survey 2024: How LP Scrutiny Is Increasing, Private Funds CFO, December 1, 2023
3 Private Eye: Insights on Technology and Leadership in the Private Markets, Spencer Stuart, February 2023.
4 Private companies are closing the cloud technology gap. PwC.
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