Private markets boom prompts new benchmarks, AI data platforms
The recent launch of a new suite of private market benchmarks represents another step in providing more transparency on valuations and pricing in the asset classes that institutional investors have rushed into in recent years.
Financial index provider MSCI in late July announced more than 130 new private capital indices covering private equity and other asset classes, adding to the existing 80 real asset fund and property indices it has.
“These indexes represent the net-of-fees investment performance in the universe of closed-end private capital funds, covering private equity, private credit, private real assets, and funds of funds,” Charissa Smith, co-head of private assets at MSCI, told AsianInvestor.
Smith said the new crop of indices (available in US dollar and euro terms) represent the major areas of private capital investing in different strategies and asset classes across the US, Europe and Asia Pacific.
MSCI
“Clients can use these indexes to understand the recent quarterly returns and historical performance for each of these investment areas,” she said.
The indices cover 13,900 funds and funds of funds with a total capitalisation of more than $11.5 trillion.
PRESSING NEED FOR DATA
Private markets are the fastest growing segment of asset management, with alternative assets expected to reach nearly $40 trillion by the end of the decade, according to the world’s biggest asset manager BlackRock.
There is an even greater need for standardised data, benchmarks, and analytics that enable investors to better incorporate private asset classes into portfolios and provide fund managers with better data and tools to deliver outcomes for clients.
Private markets data is estimated to be an $8 billion total addressable market and growing 12% per year, reaching $18 billion by 2030, according to BlackRock.
A lack of benchmarks and asset valuations are among key challenges for investors wading into private markets.
Private markets by their very nature are highly non-transparent and illiquid.
Investors typically have limited information about a company’s financials or performance because private companies are not required to comply with regulations or reporting the way that public companies are.
Whatever information is provided may also come with a significant lag, ranging from a few weeks to a few months.
“The limited availability of reliable market data for private assets complicates accurate valuations, especially in some developing markets in APAC,” said Nick Kelly, head of private markets research for the Asia Pacific at WTW adding that establishing appropriate benchmarks for private market investments is challenging due to the lack of comparable data.
Limited trading opportunities, counterparty risk, evolving regulations, and convergence with public markets all contribute to a tricky market environment that can be difficult to navigate even for experienced investors.
Yet institutional investors ranging from insurers and pension funds to family offices have told AsianInvestor they are looking at private assets to meet their investment mandates.
LP-SOURCED DATA
The MSCI set of new indices will help asset allocation and compare individual managers' performance against the broader market and as well as the peer group.
MSCI’s Smith said the indices are constructed from a dataset that is entirely LP [limited partner]-sourced and MSCI-enriched with research-based insights.
"Transactions are sourced through limited partner clients, with supplemental data being continuously gathered from original source documents provided by managers," said Smith.
Only funds with complete inception to date history and daily cash flow precision history are included, she added.
“The dataset effectively represents the opportunity set of private capital investments in an unbiased way because it is sourced solely from limited partners around the world who rely on MSCI’s data and analytics services to manage their private capital portfolios.
"No data is sourced via voluntary manager data submissions, web scraping, or Freedom of Information Act (FOIA) requests,” Smith said.
GETTING IN ON THE ACTION
From traditional long-only managers teaming up with alternatives managers to using artificial intelligence to help investors manage and validate data quality, there is a flurry of activity in the private markets.
In late June, BlackRock, the world’s largest asset manager, said it is acquiring Preqin, one of the best-known alternatives data provider for around $3.2 billion.
The acquisition represents the world’s largest asset manager’s strategic expansion in the fast-growing private markets data segment.
Meanwhile, artificial intelligence, is being hailed as a potential game-changer in resolving complex data management issues in the alternatives portfolios of institutional investors.
Artificial intelligence (AI) could be a game-changer in resolving complicated data management issues in the alternatives portfolios of asset owners with regards to valuation, reporting, and analysis, asset managers and service providers told AsianInvestor.
Scroders Capital, the private markets arm of Schroders, unveiled a generative AI investment analyst platform in late June.
The platform aims to speed up the analysis of large volumes of data, enabling the manager’s private equity investment specialists to focus on high-value-add activity.
Shusi He contributed to this story.