Standard and Poor’s - Preqin Partnership
Preqin and S&P’s data partnership is the latest in a series of high-profile deals involving private capital specialists and broader financial data and software providers. We have some strong views on this emerging pattern and what it means for end-users, vendors and those doing deals in the financial data and technology industry.
What’s in a Name?
For the past decade, commentators have talked about the increasing outdatedness of the term ‘alternative’ assets to the point of cliché. As publicly-traded private capital firms lobby congress to allow easier access to their offerings, institutional investors continue to increase allocations to alternative asset classes pushing fundraising to record levels. The proportion of assets held in private capital is now so sizeable and meaningful that the traditional silos in which private capital have been managed are dying as participants adopt a more integrated approach to gain a holistic view of the world today.
Allocators increasingly need high quality data across all asset classes, while M&A professionals want to see deep information on private capital participants to compete effectively in a competitive environment. On the software side, the increasing importance of private capital has seen sophisticated investors adopt tools which facilitate a global view of their entire portfolio in the form of multi-asset class platforms such as Solovis, Caissa and Addepar. Simcorp and others are pushing the investment book of record (IBOR) to harmonize data across front, middle and back office and provide a truly accurate basis for decision-making.
Smart providers in both the technology and data sphere are taking note: developing tools, investing in flexible data-layers, forming partnerships and engaging in mergers which leave them well positioned for this emerging landscape. Just this week we saw another major deal involving Burgiss and MSCI, with Burgiss hinting that the move was driven by demand from their client base for portfolio-wide tools and analytics. It’s likely that MSCI has a similar view and motivation for making the $190mn investment.
Preqin and S&P
Preqin’s partnership with S&P follows quickly on the heels of a similar deal with Factset, another major provider of financial data. Other mainstream data providers have either built up their own databases covering private capital (e.g. Bloomberg), completed acquisitions which provide exposure to high quality data (e.g. Morningstar and Pitchbook), or a mix of different approaches (e.g. Nasdaq/Evestment).
This tells us a couple of things. Firstly, maintaining high quality data on private capital markets is not easy. Data collection methods for alternatives require direct interaction and relationship-building, plus expertise in interpretation and categorization. Many of the major firms with significant resources have tried and failed to adapt their businesses to collect private capital data, unable to compete with firms specifically set up to operate in this space (which themselves have relative strengths and weaknesses on a more granular level).
Secondly, clients on both the buy and sell side want high quality data across public and private markets, they want it in one place, and are increasingly seeing this as a key factor in their procurement and data management decision-making. Major financial data providers which cannot provide access to private capital data are looking outdated.
Are Point Solutions on the Software Side Dead?
No. But…
Point solutions (i.e. specialized tools covering single areas) which ignore these wider trends will struggle in the short term and in the longer term will see frustrated clients increasingly likely to leave. The key consideration here is flexibility and integration. Solutions which facilitate the easy ingestion of private capital data into a flexible data layer which can be easily fed into an external MAC solution for wider portfolio consideration will do just fine, and many allocators will continue to appreciate the specialization advantages of point solutions. However, solutions which only support a siloed view of private capital portfolio management will surely find allocator clients harder to retain as views in the asset management industry continue to evolve.
It’s similar in some ways to the debate over suite solutions vs. best in breed within private capital software. Clients have the desire for unified platforms and a single source of truth, but vendors such as DealCloud have enjoyed impressive growth by combining specialization in one area (i.e. front office) with significant investment in data integrations and partnerships to facilitate a unified and modern approach to maintaining robust operations on the client side.
Advice for LPs, GPs and other users of data and technology:
Consider your needs and requirements both today and in future. Will your chosen providers’ offerings be as viable in years to come? How flexible and available are the products in your tech stack?
For M&A professionals, does your data provider give access to deeper data on private equity participants such as available dry powder and fund level data? Such metrics are increasingly important in today’s competitive landscape.
Consider integration, partnerships and the advantages of managing or viewing data across platforms. Relying on downloads and manual report creation is already looking outdated, partnerships and the flexibility of data output should be a key consideration during a procurement process given the increasing prevalence and value of these features.
What does this mean for investors in data and technology companies?
Whether the target is a start-up or an established company, investors must consider the evolution of private capital into the mainstream. There are opportunities to capitalize on trends such as demand for data, integration and holistic asset management; conversely a lack of strategic view on these trends may be cause for concern.
What does this mean for data and technology providers?
In a world where LPs are moving away from private capital as a siloed activity toward a holistic view of asset management, there will be demand for both data and software which supports this trend.
Private capital encompasses asset classes with unique characteristics and specialist knowledge. There will always be a need for specialized providers. The key consideration is how products and services align with changes in the industry. Vendors must consider their strategy towards partnerships and how they facilitate the flow of data cross platforms as alternatives move increasingly mainstream.
How can PE Stack Help?
We combine a robust database of data and software providers, sample clients and pricing data with industry expertise to provide value-added advisory services to vendors, strategic acquirers and deal-makers in the space. If you’d like to learn more, please get in touch:
+1 818 964 1576