Authored By
Cesar Estrada
Cesar oversees Arcesium's investment operations, accounting, and data management solutions for private markets fund managers and institutional investors.
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Leading-edge technologies may not currently play a significant role for many firms in the private markets. But they have the opportunity to vastly disrupt traditional ways of doing business.
When we look at burgeoning tech trends in the consumer space – who isn’t intrigued by ChatGPT? – we often see adoption in the enterprise landscape is not far behind. As funds in the private markets lean into modern technology, we’re exploring the advanced technologies shaping their future.
The prospect of real-time information, real-time feedback, and real-time decision-making is precious for a fund manager. And AI is making it happen. Powerful algorithms can sift through vast amounts of data to identify promising investment opportunities and optimize portfolios. As AI tools analyze financial statements, legal documents, and market trends in mere seconds, they can rapidly digest and identify a comprehensive understanding of opportunities and risks.
Excel has been the overwhelming tool of choice in the private markets – perhaps largely because it’s what users know. AI technologies are now streamlining data-related processes, including automating data pipeline setup, entry, validation, and transformation tasks. AI also creates capabilities to extract and comprehend unstructured data, boosting efficiencies in multiples for private market operations. Generative AI advancements have lowered the barriers to adoption and are helping firms solve real-world problems that impact businesses. As advanced tools simplify data entry, reporting, and analytics, the functionality enables firms to work with their data in new ways. That said, it’s important to remember that while AI can be a stepping stone to help funds perform multiple tasks, it’s only useful when the data is clean and accurate.
Admittedly, blockchain may be further down the priority list for many private markets firms. Yet, it holds the power to enable firms to confidently adopt new tech. As the private markets warm up to the idea of incorporating new technologies into everyday processes, maintaining a secure environment is paramount. Advanced technologies like blockchain offer transparent, secure recordkeeping. Smart contracts can automate compliance checks – reducing the risk of errors and fraud. As the private markets face increasing regulations, such as Form PF Reporting, new technology can enable firms to confidently create a robust filing solution.
Traditionally, investing in private companies such as real estate requires substantial paperwork, time-consuming processes, and multiple intermediaries. With blockchain technology and smart contracts, firms can create a digital asset on a distributed ledger. This transformation allows for easier and more efficient trading, increases liquidity, and enables fractional ownership. An investor can buy and sell digital shares in a real estate property by tokenizing an asset. It also opens the doors for a broader range of investors to participate in private markets.
You may be surprised to see cloud-based technology on our list. Perhaps you shouldn’t be. PwC’s 2023 Cloud Business Survey found that only 39% of private companies say all their operations are in the cloud.1 Less than one-quarter (23%) of private equity respondents in the PwC survey acknowledged they were “all in” on the cloud. Cloud-native tools are designed to leverage the scale, flexibility, and resiliency the cloud provides and systemize the most complex tasks. As firms move to digital-first systems, cloud-native technology gives developers a hyper-agile way to build applications that enhance digital transformation. Laying the proper infrastructure and data-management groundwork is critical as private market funds grow. Cloud-native tools are essential to helping firms create those transformative outcomes.
So, are private markets fund managers ready to move beyond Excel and welcome new tools? While it’s a question we’ll save for another time, the signs are promising.
Advanced tools only work when information is accurate and useable. To get there, it starts with a powerful data foundation that’s accessible, clean, and trustworthy. Contact us to learn how Arcesium can meet you where you are on your data journey.
Sources:
1 PwC’s 2023 Cloud Business Survey, November 2022, PwC
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