Aggregating private investment data is at best messy, tedious work and it causes one to take pause to consider what your business will look like just as it seems Mr. Miller has done. Within the past few years we've seen a bit of a reversal in private data availability through the acquisition of Fortigent and AltX. Fortigent wasn't a data provider per se but it certainly could have turned those pipes outwardly but now it is totally inwardly focused on LPL clients with the remaining Fortigent era clients being legacy. And AltX as we know is now Addepar and not open to any clients outside of Addepar.
Without a doubt PCR has skeletons to deal with, but PCR has relationships and has proven at some level that it can deliver a product. Product improvement is a daily exercise and it is something will be a major determining factor in PCR's success.
These statements from Mr. Miller are telling: "If you're Addepar, if you're InvestCloud you're focusing on this digital experience. We were never that company" and “In 2015, 90% of our revenue came from reporting… In 2018 that will be less than 50% so it's a major shift in our business.” This indicates very strongly to me they are serious about shifting their business model to becoming a data services provider.
I think this is great news for the industry and if PCR can capture, process and present enough of the data they could own the space. Gathering enough private data that will intersect with a firm’s holdings is a real challenge. For example DTCC has an automated private asset platform known as AIP, however the coverage is sparse for a lot of firms with smaller private asset footprints.
Becoming “the source” in this space requires lots of relationships and headcount. PCR certainly should have the experience to have the relationships. Then it comes to the ugliness of the business – gathering and processing. There are reasons why Robert Stanger provides valuations and only valuations – gathering private data is tough. Stanger provides valuation data on more than 30,000 holdings but there is a lot more to the data puzzle. But they realize that chasing down capital commits, calls, redemptions, distributions, claw backs, impact on committed, interest on… is REALLY HARD.
One of the biggest impediments to collecting the data is that the investments run the gamut from 3 guys in an office presenting quarterly statements on paper to large private investment firms that have many employees and have digital data feeds. Now spread that over 4000+ firms not including the bazillion private real estate investments and you have chaos. All the APIs in the world are not going to solve this without providing a solution for the investment vehicle firm. What’s worse is that these firms are not motivated to change. Where is the ROI for them to convert to a digital data feed? Unless there are dollars tied to it they are unlikely to change. Those dollars ultimately have to result in more investors or a vast improvement is operational cost.
Then there is the matter of standards. There are no standards for private data reporting. The only real proposed standard that I have reviewed was presented by ILPA (International Limited Partnership Association). That proposal is just that, a proposal and there is no mandate for it to be accepted broadly speaking. That specification however is limited to the internally books and records of an LP and has no direct correlation to performance data. And none of that ILPA standard would ever be seen outside of an LP.
Over the past few years there have been statements in industry news that there is a pent up demand for public facing firms to have better access to private investments. A significant part of solving this is the issue of capturing, managing and reporting on these investments. Many firms that do have a few private investments to manage find it difficult at best to manage these. Dual entry, using Excel, building incongruent report sets that have Excel or Power Point sheets stuck in between their standard look and feel, etc. From the investment platform’s viewpoint they don’t see the pent up demand because of the communications gap. For example I have yet to see any report with any hard facts to establish the value of the demand. Is it $1T or a $1B or $200MM? That number is the ROI the platforms need to see if they will adopt any kind of standard or for that matter code to an API.
For the past three years I have been working on with firms on these very issues. If PCR is going to make an impact here it has to be all-in in its efforts. It’s a big challenge but it could open up a whole new market opportunity for investment platforms and investors alike. There is opportunity in a chaotic market and this is about as chaotic as it gets.
Pete Giza | Spitbrook Associates