MASTERING DATA WILL SUPPORT GROWTH IN THE PRIVATE CAPITAL MARKET

By Chitra Baskar, President, Fund Solutions, Intertrust Group, a CSC Company

The private capital market is firmly established on a growth path, with demand for alternative asset classes including private equity, private debt, real estate, infrastructure collectibles and even digital assets continuing to increase.

Investors are looking for diversity in their portfolio, driving record-breaking capital inflows across the private capital sector. But with success comes challenges, one such challenge is technology and data.

Investors in the private capital market are much more institutional in nature and understandably demanding efficient, transparent, and customised reporting which can deliver clear information on their portfolios the management firm is taking and the impact on their portfolios.

However, according to a recent study by Intertrust Group, technology adoption and sophistication in the industry are still significantly lagging, requiring an industry-wide transformation in order to grasp the opportunities available.

The technology challenge

The new study, Introducing the Halo Framework, based on interviews with 150 senior decision-makers in private capital firms, hedge funds and private wealth managers with USD 12.5 billion to USD 29.5 billion assets under management, found that just 6% of respondents have built a mature tech platform using next-generation technology such as blockchain and artificial intelligence (AI).

Most of the firms surveyed admit they are still in the “ad hoc” or exploratory stages of technology adoption maturity, which is causing them significant problems. Nearly half (48%) believe their approach has left them facing a growing list of challenges including cybersecurity breaches, poor quality data and higher operating costs.

Moreover, nearly half (49%) say the lack of automation at their firm is leading to increases in operating costs and a reduction in efficiency, and around 47% say they have concerns about cybersecurity and data-privacy breaches and the associated costs.

The data challenge

According to the study, private capital firms are also struggling to consolidate data across multiple different sources and asset classes to deliver a single source of truth for investors. More than half (53%) of those interviewed admitted their firm currently suffers from data siloes which results in inefficient analytics and reporting.

Dealing with the data challenge is crucial, as functions such as deal sourcing and evaluation, due diligence, deal-making and post-deal activities can benefit massively from the use of technology such as AI and machine learning. These can boost efficiency, insights, and transparency for investors, while enhancing performance time, facilitating automated reporting, reducing manual tasks, and improving the management of structured and unstructured data.

It is therefore no surprise that poor data quality and organisation are seen as the biggest barriers to digital innovation by senior executives in the industry.

There are several ways firms can combat this, including the implementation of master data management (MDM) systems, which can play a vital role in delivering the technology transformation.

A connected and real-time MDM system will enable better data organisation and holistic access to data across all lines of business to derive more insights. Better quality and holistic data in more hands across the organisation, will mean better business decisions.

Whatever the route, firms that invest in adopting best-in-class technology and practices are more likely to be at the front of the / more likely to lead a better class of operations which in turn will help to attract and retain investors and deliver a sustained level of performance.

The private capital industry needs to view data not as a by-product of their business but as an asset itself. This requires a fundamental change in thinking.