Private Markets 360° | Episode 26: Enhancing Data and Solutions in Private Markets with Cambridge Associates and Mercer

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Jocelyn: Welcome to Private Markets 360°. Your insider's guide to the world of private investments. Today we have the privilege of speaking with Rich Carson, Managing Director Private Investments at Cambridge Associates and Jerry Smith, Private Markets Product Strategy Lead at Mercer. We're here to discuss an exciting new collaboration between S&P Global, Cambridge Associates and Mercer. 

This initiative aims to reshape the private investment landscape by enhancing data and solutions to facilitate better decision making for investors and fund managers alike. Rich and Jerry bring a wealth of experience and insights from their respective firms, both of which are at the forefront of private markets expertise. 

Together they'll share how this collaboration is going to create new standards in the industry, improve communication between general partners and limited partners, and ultimately drive better investment outcomes. Rich, Jerry, welcome to Private Markets 360°. It's a pleasure to have you here today. I'd like to start things off by inviting both of you to introduce yourselves and your respective firms. 

Jerry: Chris, thanks for inviting me along today, I lead the product strategy across private markets in immersive investment business, and my focus is designing and implementing investment technology solutions that empower our clients and investment teams. And we're part of Marsh McLennan as a leading professional services firm. 

In the era of risk strategy, and people are more than 90,000 colleagues, advise clients in 130 countries and we comprise of four major global businesses, Marsh, Guy Carpenter, Mercer and Oliver Wyman, each in their field, a leader where we address the complex needs of our clients. Now focusing on the Mercer approach, our business is structured into health, wealth and career. 

Within the wealth division, we have over 6,000 employees split into two main segments, retirement consulting and investments. And it's under the investment banner that we provide research, advice and tailored investment solutions for institutional asset owners of all types. And what's relevant today for our topic, our private market team specialize in private equity, private debt, real estate and infrastructure covering primaries, secondaries, and co-investments offering in a full spectrum. This structure allows us to combine global reach with local expertise, ensuring we meet the diverse needs of over 3,300 clients we work alongside today.  

Rich: Hi, Chris, Jocelyn, Jerry. Nice to talk to you guys again. Always a pleasure. This is Rich Carson. I joined Cambridge about 13 years ago to lead our private investments data and technology and related strategic partnerships. So my job is not unlike Jerry's at Mercer Investments. Cambridge Associates is an investment global investment firm. We're smaller than Mercer Investments. 

We're about 1500 employees, about 12 offices all over the world, and Cambridge Association was founded in the seventies, and our first clients were Ivy League endowments. And as a result of that, we helped pioneer what today is commonly called the endowment model or the Yale model or the Swensen model of investing, which one of its core elements is a large allocation to alternative investments, including hedge funds and private markets, venture capital buyouts, and other private strategies. 

So we've been investing alongside our clients since the private markets began in the seventies with venture capital. And our experience is really in two different dimensions. One is we have vast experience and a long history and a strong position of investing in private markets with and alongside our clients. 

And the other experience that we have, and this is kind of more where I sit within Cambridge, is we have for decades been publishing private investment benchmarks that are widely adopted in the industry, and we have over 10,000 funds and over a hundred thousand deals across all strategies and geographies. 

So these are the two perspectives that Cambridge brings to this discussion.  

Jocelyn: All right. Welcome, Rich and Jerry. Thrilled to have you on the podcast. We've got some exciting news on the horizon. Can you share what this collaboration between S&P Global, Cambridge Associates and Mercer is all about and how it's set to transform the private investment landscape? 

Jerry: Exciting indeed, Jocelyn. So we've all witnessed a remarkable period of growth in private markets over the last decade. To put this into perspective, some of the industry estimates around the total assets in this sector have surged from 5 trillion to an estimated 13 trillion today and projections suggesting it could reach 20 trillion by 2030. So this rapid expansion has been accompanied as well by significant M&A and consolidation amongst vendors of private market data and software solutions, and amid this growth key challenges emerged. The fragmentation of investment practices, different players in the market have historically used varying definitions, metrics, which complicates the effect of communication and decision making. So this is where our collaboration between S&P, Cambridge and Mercer comes into play. The primary driver behind this collaboration is the urgent need for a robust taxonomy and consistency across the industry. 

So by establishing a common framework, we're able to create a shared language that will facilitate clearer communication, more informed decision making among all stakeholders. And it's also important to note that both Mercer and Cambridge associates have a longstanding relationship with S&P. 

This collaboration is a natural evolution of those connections. Already been leveraging S&P strength in data collection, so a significant portion of the LP and, and GP market to date. So together this collaboration combines the market reach, operational expertise and deep heritage in private markets of all three organizations. 

So our goal is to address the data and solution challenges that exist in the private markets landscape today.  

Rich: Yeah. I think that the growth, thanks for sharing those statistics, Jerry. The growth has been insane and I don't think there's any indication that it's gonna stop anytime soon in the private markets and the numbers that people are throwing out about the wealth market, it just setting aside the organic growth of the institutional market, the numbers that people are talking about and the level of activity that we've seen in the wealth market in such a short period of time has been really astounding. I think from the, you know, just building a little bit on Jerry's comments about the consolidation and growth in the private market vendor space for data and software and services. 

It's really a completely different world. The consolidation has been crazy and just in the last couple of years it's changed so dramatically from where it was 10 years ago. I can barely think of a firm in the private markets data, software services space that hasn't been acquired in the last five or six years. 

And some, sometimes two or three different times as different firms have dabbled each other up over time. So I think, you know, in the face of this growth and consolidation, I think we have an opportunity. And if you think about Cambridge and Mercer’s Investment teams and our clients, they're highly sophisticated users of private markets, data and solutions. 

And I think this is a real advantage because I come from a strategy, a business strategy background before joining the private markets on the GP side and then ultimately at Cambridge. And one of the things that we always talked about in business strategy was the challenge, but also the power of having highly sophisticated and demanding clients as a way to push a company to really innovate and to be as good as you could possibly be, and set your standards higher. 

So I think that's one of the really unique and great things about having the three parties come together is that each, certainly Mercer and Cambridge have highly sophisticated investing clients. That's our core business, but also S&P’s clients, a wide range of GPs and LPs and fund to funds and, and all different kinds of players in the private markets. I think we all benefit from having a lot of experience and a lot of very demanding clients pushing us to be better, and I think that can make this a very powerful partnership. I think in terms of what we could do together, I think there's several different things. One is, I think Jerry mentioned it is, you know, creating and integrating industry standards. 

I think another way is creating or integrating new private markets data in a very high quality way. And then a third is creating and integrating this data and standards with software and other services. I'm saying creating and integrating because I, you know, I think we have the opportunity to create new data sets, new products and services and standards, but I also think there's real power in integrating the standards across the data and across the software and services that we provide. 

And ultimately, I think if we get all this right, the potential to break all this together to create a data clearing house between GPs and LPs would be something that would be incredibly powerful and useful for the industry.  

Chris: And I'd just add to that, you know, we're also now seeing the industry itself change. 

So strategies, you know, under private credit, private equity, what have you, are hybridizing, they're finding new ways to create value. And there's a real opportunity here to better define and explain what's happening from a strategy level, from an asset and deal performance level, and that's one of the benefits that we have of coming together. 

S&P has historically been a data and technology company. We're grateful to have the guidance, input, and expertise from Mercer and Cambridge Associates in establishing a new standard for how that information is communicated, but also the characteristics that stand out, the things that help both Cambridge and Mercer, but also S&P’s iLEVEL clients better understand and contextualize performance, and that's one of the things that gets me really excited about this collaboration. 

With that in mind, I'd like to take a turn now toward talking about what's happening across the private markets landscape. As each of your firms have navigated this evolving landscape, how have you seen the relationships between GPs and LPs change over the years, and what trends do you see emerging in this space? 

Jerry: Chris, that's absolutely right, and I think it's something as we take a step back and look at the, the private market allocations and how they're moving from like, I guess the margins to the kind of mainstream of the institutional investors portfolio. One of the questions they ask is, where's that capital influx coming from? 

And there's two thoughts there. One around the net new money that's entering institutional portfolios, such as expansion of sovereign wealth funds. And then secondly, a reallocation of exposures from public into private investments. One of the key trends we're observing is increasing recognition of private market funds for their diversification benefits. 

And just looking back at statistics from the mid-nineties, the number of US companies listed on the stock exchange is halved. Yet the number of US private companies is increased by, I think around 40%. So this trend indicates companies are staying private for longer, which is reshaping the investment landscape. So as a result of that, we're, we've seen a substantial increase in assets being deployed into private markets, and this growth isn't solely driven by market dynamics. 

It's also a reflection of greater level of education and sophistication among investors. More participants are entering the space and bringing with them a deeper understanding of the complexities involved in private market investing. This heightened awareness is leading to more investment decision making and a strategic approach to portfolio allocations. 

So with that momentum Limited Partners, LPs are playing closer attention to their private market allocations, recognizing their importance in achieving long-term financial goals and this shift is promoting LPs to engage more actively with GPs, fostering a collaborative environment where both parties can share and try insights and strategies. 

In response, GPs are evolving to meet these needs. I see this evolution manifesting in three key ways. First through the emergence of new strategies. An example of this could be NAV lending and royalty finance. Second, by exploring new geographies, as more markets develop and mature. And thirdly, through the introduction of new structures and vehicles like semi-liquid funds and continuation vehicles that are coming to market. 

So overall, these trends are transforming the private markets landscape and creating a more dynamic and collaborative environment for all participants.  

Rich: Yeah, I, I totally agree with everything Jerry said. I, again, I think from where we sit at Cambridge, we experience it from as investors with asset owner clients exactly as Jerry articulated. And we also experience it as we shape our PI data sets to try and incorporate all this growth and dynamism and segmentation and new performance metrics. And if, if I give some concrete examples of how we have seen the growth and the changes in the industry, private markets industry, how we have, it's changed the way we talk to our clients. 

It's changed the way we talk to our benchmark adopters. It's changed the market for providers and it's changed the way data access and data sourcing works. And so, just to give you an idea, when I joined Cambridge 12, 13 years ago, the world of private markets, data metrics services, was very, very different. 

Then the topics of conversation focused in terms of private markets performance, it focused, you know, mainly at the fund level. There was very little information available at the deal or asset level. And it focused on the kind of, what I think of as the big three asset classes are groups, the venture, buyouts, and a group of real assets dominated by real estate. 

And, you know, people were talking about IRRs and multiples and standard deviation as a measure of risk. And now the conversation is absolutely at the fund level, but also at the asset and the deal level and we’re looking at not just the standard IRRs and multiples, but operating metrics and 10 different flavors of public market equivalents and loss ratios. 

And it's not just venture and buyouts anymore. It's wide ranging strategies and structures and geographies, as Jerry said, including the crazy growth in development of the private credit market, all in a very short period of time. And then entirely new strategies like growth equity from 10 years ago, which kind of found its, its home in between venture and buyouts. 

So, you know, it's like the topics have changed dramatically. The providers have changed as well. You know, 12, 13 years ago, your options for information, let's just talk about data for a second, was it was Cambridge Associates and Venture Economics, which at the time was owned by Thomson Reyers and Frequent was, you know, relatively new firm at that time. 

And now you have a whole range of different providers from MSCI, Burgiss, to BlackRock, which purchased Ephron and Prequin, PitchBook, Morningstar, and many others. And the other big change is that 12, 13 years ago. There was very, very little transparency into the private markets, and with the rise of some of the other information providers over the last 10 years, you, you know, you, you see, yes, the aggregated and disguised outputs that have always been available in the market, but you also start to see providers using public sources and providing selective transparency into the constituents of the data set. 

So. The worlds just really couldn't be more different, both in terms of the way the conversations we're having with LPs and GPs, but also the providers of data and services into those markets.  

Jocelyn: And Rich, Jerry, is it fair to say that at this point in time because of the growth of the private markets. 

There's so much data and information out there that this is really the right time for us to partner. Where if you looked back, you know, 10 years ago or something, there wasn't that much because the growth has been so significant now it really makes sense.  

Rich: Yes. Despite the fact, I guess I put this way, Jocelyn, despite the fact that there, it has been a proliferation of private markets, data and service providers. I still think, I think we all believe that there's still an important opening in the marketplace, if you will, and I think that the, you know, the way that we think about, at the highest level, the way we think about that, that opportunity, that opening in the marketplace is yes, let's create data sets and solutions to serve the private markets, but let's inform them to the extent, the maximum extent possible. Let's do it in two ways that are important and I think differentiated. One is they're very much, uh, whatever. We can build stuff that's very much informed by actual investors in the private markets with highly sophisticated clients. 

And I think that's what we can bring. I think that's both Mercer and Cambridge and S&P all bring highly sophisticated clients, real experience in investing in private markets. I think the other thing that, that we can do that has not really been approached this way by a lot of the other providers is by doing this in partnership with our general partner friends. 

I think that the golden source material for private markets data. We've always believed that Cambridge is the financials for the total fund from the directly from the GP, and all the supplementing information around holdings and so on that that you can get directly from the gp. I think it is our aspiration to work with the GPs to get access to this information, which we believe is the highest quality source material. 

And in order to respect their confidentiality, the outputs that we would create with this information would be aggregated and disguised information. And so I think that's, that's a different approach than many of the others players in the industry. But, you know, and I'm happy to come back to this because I like to say transparency is great for some use cases, but it's got a real cost. 

And so I. My point is I think that by bringing this, you know, investor perspective to all the things that we can do together, and by doing it in partnership with gps, I think that's the way that we're gonna be able to do something really unique and exciting.  

Chris: And Jerry, the same question from from Mercer's perspective. 

How have you seen the, the demand for data. For risk information and other core performance and drivers of return content evolve among Mercer's clients and even internally within your investment decision making functions.  

Jerry: Yeah, completely agree with Rich, with your talk track there, how the industry's evolved and something, what is to call out as well is that not data is created equally. 

Investors require appropriate, high-quality data. And ultimately we're seeing that they no longer can simply look out the window to gauge market conditions. They're looking for a reliable weather report to anticipate due to trends and make informed decisions as it relates to Mercer's business and our research business focusing on performing due diligence, signing ratings, and making tailored investment recommendations based on each client's portfolio objectives, cashflow requirements, risk tolerance. 

We broke it down into three key areas where we see significant impact there. First in the pre-investment phase where we can gain valuable insights into market trends, emerging opportunities. And this information really informs our team's best thinking, allowing us to provide customized advice and solutions to clients. 

And secondly during the investment due diligence, making accurate comparisons is critical that apples to apples as we assess managers and our rigorous fund selection process really requires us to evaluate managers directly using specific metrics. One example and loss rates where essentially how much of the portfolio is realized as a loss compared to the total investor capital. 

This can vary based on the risk of run profile funds, targeting even just in the private debt space, often called out that you win by not losing. And that's a critical part to our investment due diligence. And finally, in monitoring and reporting, institutional investors are increasingly looking at their investments holistically. 

They need to understand how exposures and risks overlap. Now, historically, assessing private markets from a risk return standpoint has been challenging. So without that reliable cross market data covering both public and the private exposures. LPs are often forced to make decisions with only a partial understanding of their portfolios and the terms of risk, performance and, and liquidity. 

And Chris, just to make a point on, I guess, the availability of data and Jocelyn you touched on, on as well. Let's just take a, a kind of standard managing a standard portfolio, 10 funds across 50 companies in each with 40 attributes.  

That’s going to generate 20,000 data points on a regular basis. So that complexity really underscores the challenges investors face in making informed decisions, and something that Mercer has invested in heavily across the data technology people to really integrate these, in our investment business and ultimately for our clients. 

Jocelyn: Yeah, you bring up a good point because with the enormous amount of data that's available too. How do you help some of the clients not get caught in that analysis paralysis? And how do you talk with your GP clients too about providing these specific kind of standardized metrics on this journey so that you can, like you mentioned, have more of that apples to apples comparison? 

Rich: Well, Jocelyn, I think this is where, some of the theme that we've been talking about with the investment experience as being Cambridge Mercer, being private markets practitioners for a long time and putting a ton of money to work and having relationships with enormous number of GPs,  

I think that's really a benefit because to a certain extent people are trusting their private markets data providers to take the way they organize the data really seriously. And with as an investor's perspective, and with an investor's judgment. And so I think that's one of the things that is exciting to all of us is that the combination of S&P, Mercer and Cambridge, we've got a load of private markets experience, both from the perspective of 

as investors as doing diligence, as monitor monitoring portfolios as data providers and software providers. And so I think that there, you know, we hope that the combination of these three parties creates a level of trust both from the GPS and the LPs. These folks know what they're doing. You know, I may not have visibility into everything that I can see, but these are some serious professionals making serious judgements about how to think about the world and how it evolves and what good metrics are, what good risk and performance metrics are. 

So I think that's part of it, is just, building a relationship of trust with LPs and GPs.  

Jocelyn: And Jerry, could you comment a little bit on the strategic relationship between S&P Global Mercer and Cambridge Associates? Kind of following on what Rich said, and I'm curious what you feel each collaborator is bringing to this initiative and what you feel is motivating us all to team up in this respect. 

Jerry: So Jocelyn, I think Chris, really touched on it earlier in a really positive way in terms of what each of S&P, Mercer and Cambridge are kind of bringing to this collaboration. From S&P Global, contributing significant data and operational expertise with Cambridge and Short Bridge, you've, you've elaborated on this and how Cambridge adds value with its extensive knowledge and the high quality private investment benchmarks it brings to the market today. 

Mercer offers a diverse and, and global client base from across the continent. So ensuring that we have a comprehensive perspective on investment needs. Now, as you talk to kind of the motivation behind this as both a limited partner and a general partner, we're understanding of the complexities involved in data collection, bringing this together, and then ultimately the requests that come from investors. 

So. Our perspective in this space will really reinforces our commitment to developing an effective solution. Our motivation as well stems from, I guess a dedication to clients and the general partners we work with. So by joining forces, we can tackle the challenges investors face and deliver some solutions that would enhance their investment strategies. 

Rich: I would echo, you know, what Jerry said. I said one additional point I would make is that, you know, Cambridge, I said this a couple times, but you know, we kind of look at this market from two perspectives. Our, the primary way we look at it as an investors for alongside our clients, very much like Mercer. We also do have, and have for a while, a private markets benchmarking product that has been widely adopted in the markets. 

We've been producing these benchmarks for, you know, decades at this point. I think that the things that are driving us to, you know, join forces, uh, here is a couple different things. One is we, Cambridge, we're an investment firm. We're not a, a data firm. We're not a tech firm. I mean, yes, their data and technology incredibly important to our businesses, but we're fundamentally a firm that is dedicated to helping our clients create custom portfolios that meet their objectives and outperform their benchmarks. And so you know, while we have created our own private markets data sets. Many years ago because when we really started investing in private markets, there was nothing available. 

So we had to create our own data sets. And while we're really proud of these data sets and they're very helpful to us, so we used them in our investment business. You know, we're not, we're not a data and tech firm. And with the dramatic growth and constant evolution of this market and the increasing consolidation and competition. 

It’s our view that we need strong partners to help continue to develop the data and that our clients and our investment teams need to do their jobs and Cambridge's existing benchmarks and PI data sets like our operating metrics data set are our terrific and very high quality and really instrumental in our practice. 

Together with Mercer and S&P, we can create additional data sets that complement what we have internally and will provide our investment teams and our clients with even more breadth of insight, depth of insight, and you know, more data, more solutions, more standards. I think that's kind of the, that's the primary motivation is for us to really take the private markets data and solutions opportunities and together with S&P really take them to the next level and both Mercer and Cambridge's investment teams and our clients will, we expect, will really benefit from that.  

Jocelyn: Yeah, I think that the collaboration is fantastic because I always like looking at data. 

Even when you hear about trends and you know, having data to be able to back some of that up, look at different ways in which you could help clients get information that they're looking for. I think that that's all very interesting and it makes a lot of sense with the kind of different amounts of data that are out there to join together. 

And Jerry, I'm also curious, what are your thoughts about what can be done with the content that'll be generated and how it's going to enhance your firm's investment practices?  

Jerry: So, at the, at the crux of this, I think we're, ultimately what we're saying is that there's more information available as you look to allocate into private markets. 

And that's something we're hearing all the time from clients. In terms of understanding how things evolve and talked about earlier, it's really important to call out that actually it's seeing those market trends, emerging opportunities, perhaps dislocations in the market that we can then really bring to life through our best thinking and strategic research that we can play back to our clients. 

It's moving from that world where we have siloed data and a reliance on public sources and really bringing it into place where we can truly understand what's happening in the industry within our portfolios as well, and really play that back to clients from a risk liquidity and performance standpoint. 

Chris: Rich, you mentioned earlier there's, you know, an increase in the amount of information available, and that comes with a cost for Cambridge Associates. Could you elaborate on that more for our listeners?  

Rich: Sure. Chris. Yeah, I think, what I was talking about earlier was that, you know, the differences in the private markets data available today versus 10, 15 years ago, and because of the sensitive nature of private markets data. 

Historically, the primary way for data providers to present that data was in an aggregated and disguised form. And that's, I mean, that's, that's great. I mean, that has a bunch of benefits, which you know, I'll come back to in a second, but over the last 10 years we've seen a lot of different players that have come into the market that are using as their primary sourcing strategy, public sources, foil like requests, regulatory filings, web scraping, anywhere that they can get data, they do. And because that's the primary way they source the data. They have the benefit of being able to provide transparency into the resulting data set in terms of the name of the fund manager and the name of the fund and exact performance, you know, performance information related to a specific fund. And I think that, you know, that kind of transparency has absolutely has its use cases and can be insightful. But I think it also comes at a cost. And the cost I think we believe is significant. And so what, what is the cost of, of using these sources to come up with more transparent information and data sets? 

One is that the completeness of data is just not there. It is because of the nature of getting the information where one can. It's not complete, it's not the full history. It's not a quarter by quarter since inception. Record of cash flows and net asset values like for example, we use in the Cambridge dataset. 

So it's spotty and it depends on what data can be got. The second cost is timeliness. And because already these private markets data is at a lag because of the reporting, the quarterly reporting rhythm. And once you start layering on the times for freedom of information act like requests or required to, for these, this data to get into the public market, maybe through a public institution or regulatory firing, a lot of times it's many, many months, if not multiple quarters stale. And the third thing is, I think, you know when, when you're operating in a world where you're working off of what data, whatever data you could get from public sources, it's a lot harder to be, I think, rigorous in the way this information is classified because you're just taking what you can get as opposed to actually being deeply involved with that asset class or with that manager of that fund. So, you know, it's always been, it's been our experience that if you really want access to high quality data and complete data and timely data and rigorous data, then you need to respect the confidentiality of the contributing GPs. 

I think, you know, that's what Cambridge has done, aggregate and disguised outputs only. That's the way we get participation and completeness and timeliness and rigor. And I think that's a philosophy that I believe that our partners at S&P and Mercer absolutely embrace.  

Chris: And that's an observation that we share, certainly that I share from my role leading the iLEVEL business. 

It's true. More than ever for all of our LP clients, our investment consultants, diversified multi-asset managers as well, that paradoxically, there's never been more data available, but it's harder and harder to make use of it, harder to map things, create a single source of truth, to be able to compare funds and different performance metrics, apples to apples. 

And I think that's a very important facet of what we're all doing together here. Rewriting that taxonomy, establishing more of a clearinghouse approach to allow managers to report to one place and be able to securely share data with interested parties on the other side, and providing that guidance for the characteristics and the myriad of ways that performance and other attributes can be reported in a single and easy to understand data model. 

Jocelyn: Thank you for joining us for this episode of Private Markets 360, where we explore the groundbreaking collaboration between S&P Global, Cambridge Associates and Mercer. Rich and Jerry provided invaluable insights into how this initiative is poised to enhance the private investment landscape through improve data standardization and innovative solutions that benefit both general partners and limited partners. 

We discussed the evolving relationships within private markets, the strategic motivations behind this collaboration and the potential impact on investment practices, including manager analysis and asset allocation. The shared expertise and commitment to high quality data among these firms, promise to pave the way for more informed decision making in this fast growing industry. 

We appreciate you tuning in and hope you found this discussion as enlightening as we did. Don't forget to subscribe to Private Markets 360° for more expert insights and trends in the world of private investments. Until next time.