Unlike public market investments such as stocks and bonds, which are open to all investors and often times listed on exchanges, private market investments are only available to certain types of investor, typically alternative asset management. Also, whereas public investments have a standardized security master data model, private investments such as venture capital, real estate and private equity have not had a standardized data model or securities master.
That is slowly changing, with the rise of specialty market data providers who aim to get detailed data points on these investments. Firms that manage these investments, such as private equity managers, are finding that they need to provide more detail on their individual investments in order to raise capital from investors. The demand for more detailed data on these investments has forced private equity and other alternative asset management firms to become more transparent. In turn, this has led to increased investor demand for and comfort with these types of asset classes.
Taking alternative asset management to a wider audience
This development is raising the prospect of standardized private investment or alternative asset management data extending beyond the traditional institutional investor profile, and into the emerging alternative investor profile of high net-worth individuals and other private investors. That expansion will take time, however.
We can look at an example of a private equity firm that makes direct investments in real estate, in this case shopping malls. Having a standardized model that aggregates common data points such as: location, size, store, and rent details allows the private equity firm to more easily meet client demand for this information. By having access to these data points easily and in a standardized format, private equity investors can perform detailed due diligence on these potential investments as well as properly manage risk and diversification goals in order to maximize their return on investment. This scenario is beneficial to both private equity firms and investors in these funds. Private equity firms can leverage their alternative asset management data model to scale their business, meet client demands, and open additional distribution channels. It is beneficial to private equity investors, since the data model allows investors to streamline the due diligence process by having a process which allows for investment research on a like-for-like basis.
A standardized data model
Beyond this specific example, a standardized model allows investors to have better transparency across their current investments, which slice across the different alternative asset management verticals such as venture, private equity, private debt, real estate, and hedge funds. While the ability to look-through to ones underlying holdings has been a mainstay for public market investors for nearly a decade, this has not been easily available to private market investors. Creating views that look-through to the underlying investments allows investors to view their total risk and exposure profile. Having access to this information on a much more frequent basis allows investors to anticipate change and thus make more informed outcome-oriented investment decisions.
Bringing transparency to a historically opaque asset class helps to lower the overall risk profile for investors. The ability to aggregate alternative asset management data about these investments into a standard model or data master makes it much easier to find details relevant to investment strategy and decisions, as in the examples above. While liquidity risk will always be present in these types of investments, mitigating transparency risk allows these investors to be better informed and thus be more precise with their risk budgets.
Alternative and private market investment offerings have proliferated so much in recent years that raw disorganized data can be much greater and more challenging to analyze than when the likes of KKR, Bain Capital and Blackstone were the only major private equity firms. Smaller investors want and need data points made available through standard models in order to perform analysis on investments themselves and make informed investment choices.
Still, there are few data aggregators who have taken on private investment vehicles. Through GoldenSource Nexus Investment Data Warehouse, alternative and private market investors can consolidate relevant data and ensure its quality, plus link to other functions supporting alternative asset management such as pricing, customer master data management, securities mastering and connections to vendor feeds. Having a solid data warehouse as a foundation (which can also be fed by those data aggregators) puts investors and investment decisions on a footing closer to what investors in traditional securities have.