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.

Observations from the C-suite

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:

  • Access to critical data for timely decision-making is impeded by antiquated and chaotic systems and cultural reluctance to change.
  • Manual processes delay responsiveness.
  • Siloed information and communication jeopardize crucial insights and effective actions.
  • Legacy systems and their staffing require increasing investment to compete with new technologies.
  • Competitors have higher performing technologies.

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:

  • Continuing to work with legacy systems may pose a roadblock to their company’s growth, including an inability to manage new asset classes or increased volumes.
  • Retention of essential finance, portfolio management, and operations teams, to name a few, will emerge as key pain points as the pace of manual data manipulation escalates.
  • Expenses will balloon, outpacing growth, as their business lags in efficiencies.
  • Investors will lose confidence in their reporting processes and the robustness of its capabilities to make timely  decisions and manage risk, among others.
  • The company’s inability to meet investor or regulatory requirements will result in reputational damage.

Solving for private markets requirements

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

  • Data in private credit comes from disparate sources — that may also be duplicative, have varying assumptions, and contain gaps in information — creating challenges in aggregation, reconciliation, analysis, and storage, among others.
  • Deal-making and capital-raising involve a diverse set of stakeholders, each with their own service and reporting requirements and inquiries.
  • Loan terms are highly customized and detailed, which make them cost- and labor-intensive for Excel or other highly manual processes.
  • LPs are increasing their scrutiny of underlying data and requiring faster response times.
  • Data from varying asset classes requires utilizing more than one operational process.
  • Within an organization, data has not been made compatible with all systems so it is not easily shared.

Identifying operational weaknesses

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:

  • The pace of fundraising and ad-hoc LP reporting is overwhelming
    Perhaps you are dependent on a heavily manual system that needs an ever-amplifying staff to maintain or you are toggling among multiple platforms to answer increasingly complex questions.
  • Technology solves for a specific problem, instead of addressing fundamental data governance processes
    Measures like these produce only short-term gain and are unlikely to be scalable or offer significant benefits in terms of business resilience or value creation.
  • Risk and information security protocols are not rigorous enough
    This is a concern not only for the security and reliability of your information, but may also be a point of inquiry by your LPs.
  • An operations system is not cloud based. Despite an enthusiasm for sophisticated technologies such as AI and ChatGPT, some private and private-equity backed companies, as shown by the results in PwC’s 2023 Cloud Business Survey, have not yet fully embraced cloud adoption, reasons ranging from trust to budget.4

Leading with process-driven solutions

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:

  1. Data collection and digitization process, with storage in a centralized location.
  2. Data cleansing and normalization to account for variations in data sources and formats, gaps in information, and sensitive or confidential data, allowing it to be accurately and reliably consolidated.
  3. Data quality and governance that ensures data is meaningful and trustworthy.
  4. Data analysis and reporting that enables robust analysis and confidence in regulatory and client reporting.
  5. Data platform and solution, serving data needs throughout the firm, promoting collaboration, and supporting effective decision-making.

Graph depicts data flowing through Aquata for cleansing and normalization

Case study: Addressing system overload

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

Migrating to resilience

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.

Learn more about how our strategy and solutions may benefit your business in our E-Book Mastering the Five Essential Pillars of Data Management in Private Credit.

Author:
Lael Wakefield 
Lael is a Senior Vice President and Sales Executive for private markets on Arcesium’s Client and Partner Development team. Lael brings 24 years of experience in the financial services and technology industry.

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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