Dan Sharp, Partner, Sionic.

Andrew Putwain: Private markets have grown massively – with this growth from public to private – what challenges are you seeing around maturation and this switch?

Dan Sharp: The requirements for private markets are very different to those for public markets and many firms that have historically invested in public markets are now building up significant books of private markets assets. There are several different challenges in applying that same Target Operating Model, which is established for public markets, to private markets.

The challenges boil down to the complexity of the assets, the number of manual activities in private markets, the need for specialisation, and then being able to build a robust and scalable operating model.

Andrew: Around the issues of maturation and inflection points of public to private growth – what issues are you seeing and what strategies work?

Dan: It is two overarching drivers. One is having a scalable Target Operating Model where there is a significant reliance on manual processes and hence needing people to perform those manual processes. It's not very scalable.

"Businesses need to make sure there is the right front office support in place and the right data to service the front office teams"

Secondly, given the less developed or mature operating models in private markets, businesses need to make sure there is the right front office support in place and the right data to service the front office teams.

To address those challenges requires taking strategic Target Operating Model decisions, understanding both current and future business requirements. This includes strategic decisions around boundaries of outsourcing, use of third-party providers, technology deployment, and how private markets teams are organised within that framework. Then you source appropriate people and vendors, which, in some cases is easier said than done.

Recruitment is also particular hotspot in private markets.

Andrew: What about scalability issues?

Dan: The most common thing is clients say is that if they launched 10 UCITS funds on the public market side of things, they could absorb that into their existing capacity. Whereas if they launch 10 private markets funds, they then need a proportionate increase in the number of people to be able to service those funds. The challenge is around breaking that link.

"There is also the aspect of the right level of knowledge, specialism, and expertise proliferated through the business"

It comes down to those strategic Target Operating Model decisions and having clarity on outsource boundaries - which providers, the right deployment of technology, the right people in the right place, and clear lines of responsibility.

There is also the aspect of the right level of knowledge, specialism, and expertise proliferated through the business. You might have front office teams designing and launching increasingly complex structures, products, or assets, and you must make sure that the support teams understand those products and assets and can appropriately service them. A large part of that comes down to the product launch process.

Andrew: Data in this sphere is often unstructured, and sometimes can be the wrong kind, or going to the wrong level – what strategies can overcome this?

Dan: You need a golden source of data within the framework of a defined data operating model, with clear ownership and accountability for the data.

The data needs clear flows through the business that align to strategic operating model decisions. It's dependent on how firms are organised operationally and what technology they are using.

"There is availability of front to back type solutions where you are outsourcing a portion of that responsibility for data management"

There is a developing market capability on the public side and now asset servicing firms offer outsourced data management services. Asset managers – rather than doing it in-house – are relying on a third party, and that trend is beginning to extend to private markets as well.

There is availability of front to back type solutions where you are outsourcing a portion of that responsibility for data management along with technology to facilitate better data management.

 

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