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Solving the Private Market Data Challenge

Data Science and Technology

By FactSet Insight  |  September 16, 2021

Long viewed as a lucrative strategy exclusive to investment professionals with the right knowledge, network, and capital resources, private market (PM) investing has only grown more popular following the global financial crisis of 2007-08.

Private market data is now a mainstream asset class for all types of investors and allocators. Assets under management (AUM) have increased almost threefold since the financial crisis, and private equity (PE) has outperformed public markets—even throughout the longest bull run in history.

The growth in private markets isn’t showing any signs of abatement; in fact, the investor pool continues to expand. The combination of changing regulations, new technology, and the overall trend of general partners (GPs) accepting smaller allocations from limited partners (LPs) has opened this previously hard-to-access market segment.

There are several differentiators when investing in private and public markets. For example, private markets often involve investing in early-stage, higher-risk ventures, but with a unique view to hold on to investments for longer periods. It’s quite common for a PE firm to hold a position in a private company for up to seven years before divesting its position. PE investments are typically held for over four years, making this anything but high-frequency trading.

What Are Private Markets?

Private markets can be defined as all investments that are not traded on a public exchange.

There has been much debate on when private market investing was first established; some believe it dates as far back as the 1900s, while others claim it started a few decades later, in the 1940s.

Regardless of its inception date, it wasn’t until the 1980s—when leveraged buyouts (LBOs) started being widely incorporated into investment strategies—that the private market sector really took off.

Prior to this, the primary focus of PM investing was venture capital (VC), which can be considered as a subset of PE investing.

Generally speaking, VC occurs when investors provide financing to companies that are in the early stages of their lifecycle and believed to have long-term growth potential. Although the industry has mixed beliefs on what the term “private equity” actually refers to, here we’ll use this term to describe workflows involving capital investment made in private companies. This includes both LBOs and VCs as well as the firms and practices relevant to this section of the market.  

Considerations for Selecting Private Market Data

Having already determined that private market investing is a huge and complex topic, it should be evident that the process of selecting and purchasing relevant data can be almost as complex as the subject matter from which it stems.

There are several content sets that mimic the same data types that are commonly involved in public markets, such as private company financials and firmographics data, which is often used as a stand-in for public company fundamentals data.

Data that informs the growth, size, scale, or valuation of a company is key as the end user is typically looking to either find their next “great idea” or identify a company that is at scale/investable. If access to company financials is out of the question, then understanding what a company was valued at as of their last capital raise (i.e., investment round) is a great alternative indication of valuation and growth. Similarly, sentiment and environmental, social, and governance (ESG) data derived from news or publicly sourced documents can also help fill in data gaps caused by a lack of broker estimates, providing a better indication of future private company performance.

In recent years, the rise of alternative data has provided more insight into public companies as well as their private counterparts. Data obtained via web scraping techniques, content derived from artificial intelligence (AI) processing, consumer trends data (e.g., foot/web traffic, transactions, consumer surveys), and geospatial-based content sets continue to benefit investors on both sides of the public and private investment sphere.

Read more in the eBook, Solving the Private Market Data Challenge: A Complete Overview for Leveraging Connected Content to Aid Private Market Data Vendor Selection, Evaluation, and Data Integration.

Disclaimer: The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.