On June 25th, 2024, Colmore gathered an expert panel to discuss the strategic utilization of data to drive investment decisions for Secondaries managers. The panel was composed of:
- Adam King, Chief Financial Officer, Glendower Capital
- Harry Vander Elst, Partner, Clipway
- Jeremy Hocter, Managing Director, Holland Mountain
- Alex Tarantino, Co-Head & Commercial Director, Colmore
Our short recap shares how Secondaries managers can utilize transformative technology and innovative data strategies to solve industry challenges and improve operational efficiency.
Industry Background
Secondaries has comprised about 6.5% of total PE AuM since 2016. 2023 was a banner year for Secondaries fundraising. There is significant appetite for the asset class, with 80% of Secondaries funds closing above target, compared to 60% of direct PE. European investors represent the largest groups of both sellers and buyers.
Data Is Critical For Secondaries Managers
To make fast investment decisions, firms must be able to quickly extract data from high volumes of documents in virtual data rooms, conduct bottom-up fund analyses, and analyze risk/return to set pricing. The goal of the Secondaries manager is to do this as quickly and accurately as possible.
At the same time, LPs are becoming increasingly data-hungry, asking for more and more data more and more often. Many LPs are asking their managers to populate bespoke data templates. Many Secondaries managers find that their LPs are asking them to populate the same bespoke data templates as they ask from their data PE managers. For direct PE managers, they are populating data on the portfolio companies. It is one thing for a direct PE manager to populate data on its portfolio companies. It is something entirely different for a Secondaries manager to enter data on what could be thousands of portfolio companies.
Furthermore, while direct PE managers can typically impose data templates on their portfolio companies, Secondaries managers are a step removed and must deal with high volumes of unstructured data in different formats and at varying levels of granularity.
Technology Innovation in Secondaries
In the early 2,000s, none of today’s data services or tools were available to the Secondaries managers. Most data sat in quarterly reports on desks; the only way to extract it was to use people. Early Secondaries managers grew large teams, steadily increasing with each new fund. Managers developed proprietary technology to try to solve these challenges. All were heavily reliant on Excel.
In the last ten years there’s been tremendous innovation, and Secondaries managers now have access to data providers and automated data scraping tools that make their data needs more manageable. However, most managers must use multiple data providers alongside internal data scraping technology and outsourced fund administrators. To be successful, firms must have a data platform like Holland Mountain’s ATLAS that enables them to ingest, consolidate, and surface data quickly from all of these sources.
Like all private asset classes, AI is entering the landscape. The most common use cases are data scraping and machine learning for call notices, cap accounts, schedules of investments, etc. Summarisation tools will also have a huge impact, given the volumes of quarterly reports Secondaries managers are receiving. As with all AI use cases, firms must exercise caution, be conscious of data protection and ensure that individuals remain responsible for the quality and validity of their outputs.
Building Data Capabilities Is Essential
Data is essential across all core functions of a Secondaries manager:
- The Investment team needs data to price portfolios.
- The Investment management team needs data to monitor returns.
- The IR team needs data for fundraising.
- The Investor Servicing team needs data to respond to investor queries.
- The Finance team needs data to build checks and balances to ensure they are paying and receiving the correct amount in capital calls and distributions, likely taking place daily.
This need for data will only increase as demand from investors and regulatory pressures continue to grow. Furthermore, the leading Secondaries managers are using their data capabilities to gain a competitive advantage on deals, not just pricing portfolios fastest, but using insights from their proprietary data, e.g., on the deals they didn’t do, to make smarter decisions in the future. All Secondaries managers must now invest in their data capabilities to remain competitive in this increasingly data-driven asset class.
Thank you to Colmore for hosting this webinar! Access the full recording here.
Many of the leading Secondaries managers are using Holland Mountain’s ATLAS Data Platform. Contact us to learn more.
Contact our ATLAS team for a demo of our data platfrom and how it can help your firm.
