Addressing the need for a new taxonomy for evolving private markets

The private markets are one of the great success stories of the 21st century. Over the   past decades, alternative assets have experienced dramatic growth, playing a central role in driving business innovation and economic prosperity, while delivering exceptional returns to investors. The next chapter holds even greater promise, with AUM projected to continue increasing significantly.

However, as the industry experiences accelerated growth, its participants are assuming the operational burden of advancing performance analytics, data standardization, look-through analysis and portfolio benchmarking. Simply put, what worked yesterday will not suffice tomorrow.  

The days of sharing a spreadsheet over email need to fade away in the rearview mirror. Collectively we need to step into the future and start sharing standardized, clean data across systems. However, this is no easy feat given the bespoke terms, nonstandard reporting, and ever-expanding list of fund types, structures, and asset classes that characterize the alternative asset space.

A standardized, widely-adopted (if not universally-adopted) taxonomy or classification system for private markets has long been recognized as the key to achieving parity with public markets in terms of data access and analytics.

We recently announced that we have come together with two of our clients – the investment firms Cambridge Associates and Mercer - to design just such a taxonomy that is capable of capturing the breadth, diversity, and mutability of private markets. Our new taxonomy leverages the decades of experience of our three firms, including expertise in private markets solutions, benchmarks, and advisory, and billions in alternative assets tracked, administered, and managed.

The taxonomy is informed by real-world data sets and combines a comprehensive, hierarchical structure with granular, horizontal tagging capabilities. The result delivers a comprehensive, contemporaneous outlook on the current investing market and strategy across asset classes.

No matter how quickly the market evolves, those who need to anticipate, analyze, and monitor it now have a vital tool to overcome information asymmetry, benchmark performance, understand and manage risk, and determine how macro events impact their portfolios. The impact on the market's discipline, performance, and reputation cannot be overstated.

While immensely valuable in its own right, this taxonomy is one of the key building blocks for the comprehensive private markets performance dataset and analytics we are developing with Cambridge Associates and Mercer. The new taxonomy allows us to aggregate (and anonymize) GP data from across the industry to deliver anonymized insights into fund, asset, and deal performance across private markets.