Private market (PM) investing has long been seen as a lucrative strategy available only to investment professionals with the appropriate knowledge, networks, and capital resources, but the global financial crisis of 2007-2008 As a result, its popularity continues to grow.
Private market data is now a mainstream asset class for investors and allocators of all kinds. Since the financial crisis, assets under management (AUM) have nearly tripled, and even during the longest bull market in history, private equity (PE) has outperformed public markets.
Growth in the private market shows no signs of slowing down. In fact, the investor pool continues to grow. A combination of regulatory changes, new technology, and the overall trend for general partners (GPs) to accept smaller allocations from limited partners (LPs) is opening up this previously difficult to access market segment. Ta.
There are several differentiating factors when investing in private and public markets. For example, private markets often involve investing in early-stage, high-risk ventures, but have the unique perspective of continuing to invest over a longer period of time. It is very common for PE firms to hold positions in private companies for up to seven years before selling the position. PE investments are typically held for four years or more, so this cannot be considered high-frequency trading.
What is a private market?
Private markets can be defined as all investments that are not traded on public exchanges.
There has been much debate about when private market investing was first established. Some believe it dates back to the 1900s, while others claim it began decades later, in the 1940s.
The private market sector really took off in the 1980s, when leveraged buyouts (LBOs) began to be widely incorporated into investment strategies, regardless of when they started.
Prior to this, the primary focus of PM investing was venture capital (VC), which can be considered a subset of PE investing.
VC generally occurs when investors provide funding to companies that are in the early stages of their lifecycle and are believed to have long-term growth potential. Although there are different ideas in the industry about what the term “private equity” actually refers to, we will use the term here to describe the workflow involved in investing capital in privately held companies. This includes both LBOs and VCs, as well as companies and practices associated with this section of the market.
Considerations when choosing private market data
We already know that private market investing is a huge and complex subject, but the process of selecting and purchasing relevant data can be almost as complex as the subject matter from which that data originates. That’s clear.
There are several content sets that mimic the same data types commonly involved in public markets, such as private company financial and company demographic data that are often used as proxies for public company fundamental data.
Data that informs a company’s growth, size, scale, and valuation is important, as end users are typically looking to find the next “great idea” or identify large, investable companies. If access to a company’s financial information is out of the question, understanding the company’s valuation at the time of its last capital increase (i.e. investment round) is a good indicator of valuation and growth. Similarly, sentiment and environmental, social, and governance (ESG) data derived from news and public sources can also help fill data gaps created by a lack of broker estimates and provide insight into future private company Performance can be better represented.
In recent years, the rise of alternative data has provided more insight into public companies as well as public companies. Data obtained through web scraping techniques, content derived from artificial intelligence (AI) processing, consumer trend data (e.g. footfall/web traffic, transactions, consumer research), and geospatial-based content sets will continue to It continues to benefit investors, both public and national. and the private investment area.
For more information, check out our e-book, Solving the Private Market Data Challenge: A Complete Overview of Leveraging Connected Content to Aid Private Market Data Vendor Selection, Evaluation, and Data Integration.
Disclaimer: The information contained in this article does not constitute investment advice. FactSet does not endorse or recommend any investments and is not responsible for any consequences directly or indirectly related to any actions or inactions taken based on the information contained in this article.
