Redmond Lee: The ability to collect and aggregate data at speed and scale is truly transformational. A lot of this is being driven by the cloud and the proliferation of powerful tools that would not have been deployable only a few years ago. This means participants have a new playing field of data and reporting. Most of those in the industry will be used to manually aggregating data in Microsoft Excel but the process is being transformed at pace.
"Most people are exposed to private markets via funds, which are merely
a vehicle to exposures underneath those funds."
If we look at one process in detail – the preparation of board papers, particularly for fund managers with multiple investments, this process could have taken up to two weeks. Nowadays, it can be completed in minutes or hours and what is behind this improvement is the ability to connect different systems and pull data together into a visualisation tool.
This transformation then enables the asset owners – like the investors – to respond rapidly to understanding their underlying portfolio. This is key because most people are exposed to private markets via funds, which are merely a vehicle to exposures underneath those funds.
Redmond: Many firms are developing internal analytics tools, for example, to connect disparate data sources. However, they usually depend on external tools such as visualisation platforms to make sense of it all. We are seeing the development of tools that allow the democratisation of data. Previously, the data was held internally and released on a need-to-know basis, which was driven by the difficulty of collecting and aggregating it. But the advent of these tools means that the investor can also access the same data, and this is important for examining exposure, for example.
"Investors can aggregate data for the entire portfolio and then slice and dice
and see exposures using their analytics tools."
As Covid-19 struck, many wanted to know how exposed they were to tourism, which was an industry that came to a standstill. Previously, it would take an analyst a long time to pull that together. We are not saying it was impossible, because the reporting was all there, but by the time you have it, you are reacting to data that is several months old.
Investors now can aggregate that data for the entire portfolio and then slice and dice and see exposures using their analytics tools.
Redmond: Most investors are passive and put their money with fund managers to handle their private markets portfolios. This means that whilst they are excellent with financial data and fund performance measurement, they may find themselves less able to adequately handle a data-rich investment world. Finding people to be able to interpret this data, ask questions on the underlying portfolio, and answer questions from investors - data-oriented people - is a challenge.
Most data people are already employed in the fast-moving consumer goods and retail markets. Also, this is not a new job category, but private markets managers are only now exploring this realm. Then there’s ESG, and there is a lot of data requirements developing within that.
This means the industry now needs a skillset where you not only need to understand ESG data but how to aggregate it across different companies, and aggregate and report it for specific investors’ requirements.
On the opportunities side, modern analytics are powered by technology, so it is not just people inventing these new data points, but the ability to understand and aggregate this data at scale, which is underpinned by advances in technology.
"Fund administrators and other asset services are now allowing their customers and their investors access to their technology platforms."
Some of these technology changes are uneconomical for fund managers who want to focus on managing investments - they are small outfits and run in a lean fashion - so service providers are allowing their customers to use their technology because can work at scale.
Also, the service providers have access to multiple jurisdictions whereas a lot of fund managers do not. Fund administrators and other asset services are now allowing their customers and their investors access to their technology platforms.
This is important because fund administrators oversee the bulk of the data processing. Off the back of this investment in technology, service providers are giving more than the traditional back-office offerings. A fund administrator would have done the accounting, but now they are providing middle office functions, such as fee verification, track record maintenance, and investor query handling.
Redmond: The industry needs people who understand data beyond the financials and the balance sheet.
"Understanding, collecting, and aggregating data around consumer behaviour has been around for decades, but in private markets, specifically, it is new."
The people making investment decisions and making allocations understand the numbers and the finances behind it, but do they understand emissions? Do they understand carbon abatement? Do they understand diversity and inclusion measurements?
This means an invention of a new class and means new jobs in private markets. Understanding, collecting, and aggregating data around consumer behaviour has been around for decades, but in private markets, specifically, it is new and people who don't have the skills will lose out on attracting investment and they won't hit the internal targets, such as for ESG.
The views expressed here are Lee’s own and not those of EY.
