Lost in translation: Decoding performance in the private markets

The private markets are poised for continued growth. But to support it, our industry needs market-sourced performance data capable of inspiring confidence and attracting allocations at scale.

Those of us whose careers revolve around the private markets can easily overlook just how quickly the industry has evolved over the past 20+ years. During this time, the industry has not only grown but matured into deeper accountability and transparency. Standards and expectations have changed considerably over the years, but technologies that drive robust portfolio monitoring and reporting have enabled the private markets to respond to current demands.

However, we still have further to go. On top of exponential growth, we are navigating a liquidity crisis, the rise of complex, hybridized strategies, and ongoing scrutiny from a wider array of investors and regulators than ever before. And while technology and standardization have helped us get this far, data will play a crucial role in our next chapter as the industry progresses towards the levels of operational sophistication seen in public markets.

The limitations of public comparables

Conventional performance reports, built on a mosaic of public information and private market benchmarks, come with significant limitations. Reporting that knits together different valuation bases, and performance metrics inevitably compromises fundamentals. Data solutions focused on niche sectors or asset classes prevent cross-market comparisons and analyses. And the performance of underlying holdings remains unexamined because the data doesn't drill down that far.

Stakeholders are looking more closely at individual investment performance, asking pointed questions, and demanding answers backed by quantitative data and clear, crisp narratives. A reporting system built on public comparables and opaque benchmarks simply can't deliver them.

Fit-for-purpose performance data

For LPs to evaluate opportunities and potential outcomes with confidence—and for GPs to accurately benchmark their performance against peers—we need a universal language that is rooted in comprehensive, primary-source market data, including fund histories, investment activity, capital raising, rates of capital return, levels of dry powder, and valuations. And we need to be able to dig deeper than fund performance to see how the underlying equity company investments perform.

For private credit, allocators need data on the amount of capital raised for specific asset classes. They want deeper insight into credit portfolio metrics and the number of funds raised—data that can be cross-analyzed with distribution patterns from those funds. For private equity, the picture is more nuanced, and the data needs to be granular enough to account for portfolio company growth drivers.

Across asset classes, publicly-sourced data is no longer adequate to address the demands of more sophisticated investors and a maturing market, which features innovative vehicle types, deeper due diligence and requirement for greater transparency. We need peer comparables to perform sector-level analysis for everything from average EBITDA at entry to revenue growth to exit multiples, and we need to be able to drill down to specific asset classes, vintage years, regions, or company types. Access to this type of broad and deep data, sourced directly from the private markets, is long overdue.

Building a private market data set

The diversity of market participants and methodologies, resource constraints, and the lack of disclosure requirements and reporting standards have all stood in the way of the development of a comprehensive performance data set.

A strategic collaboration between S&P Global, Cambridge Associates, and Mercer is overcoming these obstacles and building out the first performance data superset for the private markets. Built on aggregated, anonymized data pulled directly from fund financial statements and structured by a comprehensive taxonomy co-developed with thought leaders in Cambridge Associates’ and Mercer’s research teams, which captures the industry’s breadth, diversity, and mutability, this will be the most robust data set of institutional private markets performance and analysis at the fund, asset, and transaction level.

Our industry has thrived without the benefit of market-sourced data: deals are closed, commitments are made, and capital flows. But with it, we can build a common framework and a shared language. We can demystify the industry even further, better contextualize performance and risk, and elevate confidence levels and decision quality.

This direct-source data will empower us to use real-world comparables to not only inform decision-making but broaden our horizons. It will provide a blank canvas, encouraging us to pose questions we may never have thought to ask before. Instead of allowing limited benchmarks and public comparables to shape our thinking, we can let the private markets speak for themselves and show us where the next opportunities lie. At a time when the private markets have never held greater promise, this will be an invaluable resource.