The friction in data exchange between investors and fund managers is one of the key operational stumbling blocks across private markets. At Interact London 2023, we gathered an expert panel representing both LP and GP perspectives to discuss ways the industry can work together to address this complex issue.
The key theme driving the conversation on data sharing is the increasing frequency and sophistication of LP requests, driven in part by the growing complexity of their portfolios.
As one panelist commented on the evolution of requests from LPs: “We've always been very detailed, but as the demand has grown, we've tried to match that and make sure that we're really focusing in on what our LPs are asking, and providing that back to them in a regular and transparent manner as well. It's safe to say that the requests are increasing.”
What is driving those requests? Our panelists cited regulatory concerns and the rise of sustainability reporting in private markets as two major factors in Europe. For example, in some jurisdictions, transparency on valuations that underpin portfolio companies is being pushed by the financial regulators.
For GPs, new reporting requests create a need to consume, manage, centralize, and report much more granular data and KPIs: “As you start looking into areas like ESG and impact, for example, there are more and more data points that we're having to consume, report on and then be able to make use of.” Another speaker noted they have increased data collection from their portfolio companies from a quarterly cadence to monthly.
The rising data flow risks increasing costs. “We need more data, but we need smart solutions to keep the cost low at the same time,” one panelist said.
Industry-wide solutions won’t be easy, but the speakers explored options such as streamlining the way questions are being asked of GPs. Some of this work is already underway in the sustainability space, with GPs trying to agree on a common set of metrics. The need for an industry standard dataset and generally accepted metrics resonated with the group.
This approach could be extended with even more collaboration around data requests. As one panelist posited: “There is a scale benefit to having a single place where you represent a majority or a large number of very sophisticated data consumers on the LP and investment advisor side, so there's just a single point of contact from the GP perspective, and a standard set of questions and metrics that you're asking to facilitate that flow.”
While we wait for next generation solutions, many GPs will face technology challenges in data management in the coming years: how can they get meaningful data into the hands of the end-users quickly and efficiently?