As allocations into private markets continue to rise, asset owners are discovering additional unforeseen operational challenges and pressures. We recently discussed this on a panel at the in Sydney, Australia. Strategies that involve an increased investment into Private Markets have a dual benefit of exposure to attractive assets, accompanied by fewer fees than other fund structures. However, this branching out increases complexity. Different data feeds, multiple valuations, tax issues and legal considerations—some of which may come with information that does not integrate into existing IT systems—require a lot of work to ensure the operational flow and IT infrastructure can support the investments.
Getting an accurate picture of the investments can be challenging. A total portfolio approach requires comparing deals across both private and public markets. This comparison uses different sample sizes and data, which can be difficult to calibrate correctly, as the data is often unstructured and can come with bias and quality issues. Those data challenges impact every area of each operational process.
While technology can be a helpful tool to solve some of these challenges, some components—like valuations—require in-depth expertise, making those components difficult to automate. However, the rewards are compelling, and challenges can be mitigated with the correct groundwork. Before entering into new investments, new processes must be thoroughly tested, the staff must be trained and comfortable with the new strategy, and the data feeds must be standardized and connected. This will provide a solid foundation and minimize future problems.
To learn more about laying a solid foundation for your next investment strategy, download our "Building an Operational Advantage" brochure.
