The Drawdown: New Year, New Toolkit

Griff Norville of Hamilton Lane examines how private markets are embracing the next generation of tech.

We are experiencing a period of unprecedented technological advancement across the private markets. It is exciting to see a plethora of innovative solutions emerge that are dedicated to helping investors navigate this asset class with greater ease. However, even with a wealth of options at one’s fingertips, too many LPs and GPs still rely on last year’s – or last decade’s – investment tech stack.

Fortunately, the top firms across the asset class are recognising the potential upside of the latest tech evolution, and there is growing enthusiasm about digitalising workflows to help drive investment advantage. The private markets have grown up: there’s about 40-50 years’ worth of industry data to put to use if investors are lucky enough to have access to it... and the tools to analyse it!

However, one of the issues investors are encountering is the sheer quantity of tech solutions out there. For those that have delayed getting their house in order, it’s hardly surprising they may be overwhelmed by inbound messages from the long list of vendors marketing to investors, unsure of who to trust as partners. It can be seemingly impossible to know where to start.

The right tool for the job

There’s no single tool that does it all, so we recommend focusing on the most important challenges within your private markets portfolio. While the industry has made progress in recent years, lack of data transparency, operational inefficiency and barriers to new entrants continue to be major hurdles facing investors. Let’s break down examples and potential solutions across these areas.

What if you are looking for credible, highquality ESG data to inform your private markets investment decisions – but falling short? As it stands, no two groups are tracking this kind of information in the same way: what might be important for one company or one region of the world is not for another (not to mention, concerns about greenwashing). Fortunately, firms are beginning to take real steps to address this challenge, as this is potentially costing the industry a large amount in lost investment.

For example, there are now tech providers dedicated to collecting private company ESG data and making it accessible to investors within one flexible platform. Once collected, this data can be used as a barometer to assess the ESG credentials of private companies, and investors can gain confidence in their allocation decisions. Overall, this lends more transparency to a previously opaque, or non-existent, element of the asset class.

A bad workman…

Are you a smaller investor facing friction and barriers to entry in growing your private markets portfolio? You know… private equity is often associated with high investment minimums and excessive complexity in the investment subscription and monitoring process. But this is no longer a given, thanks to the latest tech solutions in the market.

One way to solve this challenge is to use blockchain to democratise access to the private markets. By creating a digital ledger of ownership, blockchain has streamlined the previously complex and manually intensive process of buying private assets and accepting fund subscriptions, making it far cheaper for all parties.

This can significantly lower the investment minimums, given that less administration is needed, meaning more investors than ever can gain access to the private markets. It may also allow for more secondary transactions because there is far less friction associated with trading digital assets, as opposed to normal investments where you might need an army of brokers and lawyers to facilitate a sale.

What if the industry’s adoption of generative AI is top-of-mind for you? A number of firms are starting to take advantage of this technology to further democratise access to private markets. These groups are creating assistants to help explain some of the more complex elements of private markets to newer investors. For example, explaining in plain language the different ways to benchmark and measure performance in the private markets, and the various types of alternative investment structures available for investment.

The intention is to simplify the information in such a way that investors can cut through the educational barriers to entry (such as private equity ‘lingo’) and start making informed investment decisions.

Ultimately, it’s no longer a question of whether investors in the private markets will embrace a cutting-edge tech stack: this is the new normal. Investors that remain with last decade’s tech stack are more likely to fall behind. With so many potential solutions, it can seem overwhelming to distinguish what’s a must-have from a nice-to-have on your tech wishlist for 2024 (and beyond).

But rest assured, for investors willing to break down and prioritise their challenges, many potential partners are standing at the ready to positively impact their private markets investment experience.