The data revolution is one of the most significant human advances of the 21st Century. But what does this mean for private markets?
To find out, we've surveyed 300 senior executives working in alternative investment firms across the UK, Europe and the US to learn about how they use, interact with, and analyse data.
Differentiation Through Data
In this report we reveal the current state of play when it comes to data usage within private markets, how data analytics can be used to build a competitive edge including machine learning and predictive analytics, and how best to manage ESG data reporting requirements given the lack of standardised reporting frameworks and inconsistent data provided by investee companies.
Differentiation Through Data is the first study of its kind in private markets. On this website you can download the report in full, read some of the insights and learnings we’ve developed off the back of the survey’s findings, and listen to a range of data-themed podcasts we’ve recorded with a range of industry experts.
Methodology
In Q3 2022, Mergermarket surveyed 300 senior executives working in alternative investment management firms to gain insights into how they use, interact with and analyse data. Firms were headquartered in either Europe (150) or North America (150) and were distributed equally among average target fund size (under €250 million, between €250 million-€500 million, between €500 million-€1 billion, and exceeding €1 billion).
All responses are anonymous, and results are presented in aggregate.
OUR KEY FINDINGS
What is driving the collection, analysis and application of data in private markets? Our in-depth survey of senior executives working in alternative investment management firms offers some revealing insights.
1
Size matters when it comes to data strategies
89% of firms with the largest average target fund sizes (€1 billion or more) say they use technology to support workflow and back-office processes and manage their investment portfolios as well as having an established data strategy that drives their dealmaking. Just 3% of firms with the smallest average target fund sizes (less than €250 million) can say the same.
2
The human factor is an essential ingredient
Respondents at both the smallest and largest ends of the fund spectrum are the most likely to have a dedicated senior resource for their existing data strategy, with every firm in the sub-€250 million category and 91% of those in the €1 billion-plus group saying they have such a resource already in place.
3
Confidence levels in data sources depend on the size of the firms involved
Third-party data sources are used by 44% of respondents representing smaller average target fund sizes (less than €250 million), versus 83% among those with the largest average target fund sizes (more than €1 billion). Just 19% of firms targeting smaller funds are likely to be very confident in the accuracy and/or quality of that data, versus 44% of those at the larger end of the fund scale.
4
Used effectively, data can drive deals
66% of firms overall say that they consider measuring portfolio and/or project performance to be one of the most critical outcomes of a data strategy. Drilling down into the data, 70% of private debt and multi-asset fund management firms agree with this sentiment, followed by 66% of private equity firms.
5
Analytics can have a positive impact on the relationship between general and limited partners (but size is a factor)
35% of all respondents agree that advancements in data analytics can transform the GP and LP relationship by increasing transparency, improving communication and providing better insights to support LP decision-making. But drill down into the data, and this falls to just 16% of those with an average fund size below €250 million. Almost a third think the benefits are outweighed by the implications.
6
While data has value, many remain suspicious about sources
60% of all investment firms say that the reliability, completeness and freshness of data and its sources is a fundamental challenge. Just over half also argue that technological limitations in holding and extracting data are cause for concern, while the same proportion cites difficulty in aggregating data from fragmented infrastructure to create a single, centralised data source.
7
Innovation costs
Many respondents are seizing the opportunities offered by data analytics, but they are conscious of one significant challenge—the need for continuous investment in next-generation technology. This is one of the top-three issues for 83% of respondents, with 39% citing it as the single most challenging aspect.
8
Analytics may become even more important to firms in the future — if they can afford it
52% of respondents representing larger fund sizes expect analytics to be much more important to their firm in the next three years. This compares to 29% of firms with an average target fund size of €250 million-€500 million and just 25% of firms with a target fund size of less than €250 million.
9
Environmental, social and governance (ESG)’s impact on deal-making may depend on fund size
Firms targeting the largest funds (€1 billion and above) are two-and-a-half times more likely to cite a lack of ESG data as a major dealmaking deterrent than those with an average target fund size of less than €250 million.
10
Larger funds are using external validation in ESG reporting, which may help minimise accusations of “greenwashing”
56% of respondents representing average target fund sizes above €1 billion say they lean on both internal management and third-party support to collect and report on ESG data. For the smallest funds, this drops to just 23%. Having a combination of internal and external expertise may become essential when validating any ESG-related claims and dealing with complex regulatory compliance.
KEY FINDINGS SOURCE: Aztec Group & Acuris Report – Differentiation Through Data (Nov. 2022)
As a global leader in fund and corporate services, administering more than 450 funds and €440 billion across the leading jurisdictions, we’re well placed to share our insights and observations on the latest data trends and developments in our industry.
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