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Hank Boughner is the CEO of Dynamo Software , an end-to-end cloud platform for the alternatives investing ecosystem. Historically, investors navigating private markets and the alternatives ecosystem have had to rely on relationships, intuition and broad segment strategies to make critical decisions, gleaning what they could from limited specific company and fund information. By necessity, the art and science of dealmaking was tilted more heavily toward the art: being in the know, timing, vision and sensing opportunity.
Only those with significant deal volumes could piece together enough relevant information for data-backed dealmaking. However, the landscape for dealmaking “science” has been changing recently, moving the universe of data availability and transparency in private markets somewhat closer to its public counterpart. Though significant gaps still, and likely will always, remain, investors are reevaluating how to best approach this asset class amid new streams of data that are leveling the playing field and driving new opportunities.
Trends Accelerating Private Investment Data Transparency The private investment landscape is undergoing a significant shift as data transparency becomes a crucial factor in decision-making. Despite a history that’s been characterized by limited visibility, the private markets information landscape is changing at a rapid pace. As such, investors seek—and are coming to expect—more granular, reliable data as they navigate increasingly complex markets.
Here are four key areas driving this evolution: 1. Institutional Investors Amassing Proprietary Data: Institutional investors now have decades of exposure to private markets, enabling them to build vast repositories of proprietary data from their investments. Consider how Yale University analyzed its alternatives investing history to create the Yale Endowment Model , now a benchmark that informs the investment strategies and capital deployment models of institutional investors.
As more institutional investors adopt similar strategies, the effect ripples through the industry; they also come to expect greater transparency from private investment firms. 2. Specialized Global Data Providers: As financial markets have become increasingly complex and globalized, a specialized industry for alternatives data has emerged.
Data firms, such as Preqin and others, have been able to leverage advancing technology to collect, aggregate and analyze global data across asset classes. This data offers deeper insights into private markets and helps investors better understand more complicated investment landscapes. 3.
Data Aggregators For Private Companies: The trend toward increasingly specialized data is becoming even more granular as data firms become more adept at mining and processing data from various sources. It has created the ability for data providers to develop new products and services that include the ability to obtain more detailed data on individual private companies . Investors are using it to conduct more rigorous due diligence and risk assessments.
4. The "Retail-ization" Of Private Markets: Private investments have been largely out of reach for everyday investors due to high investment minimums and the complexity of accessing these opportunities. But, global investments firms like Blackstone are at the forefront of making previously exclusive investments available to a broader range of investors.
The retail-ization of private markets has yielded new platforms and investment products that allow individual investors easier access to private equity and real estate funds without minimum investment requirements or lock-up periods. Marketing these products to retail investors requires greater disclosure so they can make informed decisions. Data Velocity Is Inspiring More Action Much of the data conversation tends to reflect its ever-growing volume, but the velocity of data is a particularly exciting area of growth in private markets.
Even if it’s not always “real-time,” the visibility and data refresh rates are making information more actionable. The faster accumulation and processing of data from diverse sources is giving investors a quicker and deeper understanding of sector performance and individual companies. Deal cycles are speeding up as these insights are applied to uncover and decide on opportunities more rapidly.
The ability to react swiftly to changing conditions offers a critical competitive edge in the increasingly dynamic investment landscape. What’s more, this data begets more data. As firms continually feed new data into their analytics models, they generate more robust insights.
Accumulating data points from past deals, sector performance and market conditions enable investors to identify trends and patterns more adeptly. The ability to track and compare variables such as deal sizes, valuations or sector-specific benchmarks allows firms to fine-tune their strategies and make data-backed adjustments. Navigating Private Markets With Greater Precision Data transparency in private markets is increasing, but it will likely never resemble the level of disclosure seen in public markets.
This shouldn’t be the goal, as both serve distinct purposes in the financial ecosystem. Together, they achieve a balance that supports diverse capital needs, and gives private companies greater flexibility to innovate, grow and build value for investors. However, as investors and regulators push for more transparency in private markets, visibility is increasing in ways that allow investors to navigate private markets with greater precision.
This can encourage more capital to flow into private investments and fuel the exploration of innovative ideas. As transparency grows, investors will benefit from better insights while businesses maintain the advantages of remaining private for as long as it suits them. Despite the abundance of private market data, identifying actionable signals amid the noise comes with its own challenges.
Data in private markets is fragmented across diverse sources. It’s also largely unstandardized, making it difficult to compare and analyze in an “apples-to-apples” fashion. Even as the data science progresses, analyzing private market data is complex, and a great degree of trust will need to be built around the quality and accuracy of data-driven predictions or advice.
Data alone can’t drive every investment decision, but it is ascending into its place as a central driver of strategic processes. As such, the future of private markets looks increasingly dynamic and data-driven, and it’s reshaping how investors approach opportunities in this space. Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives.
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