The hidden challenges with Australia’s booming private markets portfolios

Franck Vialaron (pictured), Chief Executive Officer of Accelex, looks at the exponential growth of private markets in Australia and the role technology can play in enhancing, scale, data quality and supporting better investment decisions.

Australia’s private markets are in the midst of a boom, with overall private capital industry AUM growing by 33% in 18 months to $139 billion as of June 2023.

Private equity and venture capital make up a substantial proportion of this figure, accounting for a combined $65.5 billion.

Investors are eager to tap into this lucrative opportunity. Recently, Australia’s two largest superannuation funds, AustralianSuper and Australian Retirement Trust (ART), announced plans to allocate billions of dollars to private assets.

What’s remarkable is how these institutions are now confidently deploying capital into new asset classes like private credit and real assets—areas that were considered too risky or opaque just a decade ago.

The billions of additional commitments from the largest superannuation funds underscores investors’ appetite for private markets as they search for superior risk-adjusted returns for their portfolios and members. Crucially, it highlights the increasing level of sophistication and maturity of these investors because this asset class introduces additional portfolio management complexities.

This rapid evolution brings with it new challenges that, if left unchecked, could slow down the momentum and negatively impact investment returns.

Drivers behind private markets boom 

Private markets have rapidly moved beyond an inflationary hedge to a key diversification tool and strategic imperative for Australian investors for a number of reasons.

Their expansion comes amid a notable slowdown in initial public offerings (IPOs) and a trend of public companies going private. Last year alone, the ASX market cap saw a reduction of $55 billion, highlighting the shifting dynamic in the market.

Australia’s $3.5 trillion superannuation industry is driving much of the increased investment in private markets. Major superannuation funds are boosting their exposure to private assets, including infrastructure, real estate, private equity, and more recently private credit as a way to diversify and achieve better risk-adjusted returns for members.

Over the next ten years, the Australian Superannuation Funds are projected to invest an additional A$31 billion in private equity, A$41 billion in unlisted property, and A$36 billion in infrastructure, totalling approximately A$100 billion.

The increase in the number of family offices has also helped boost the market. Of all active Australia-based private capital investors, the proportion of family offices increased from 7% to 36% from 2019 to 2023. Family offices tend to have long-term investment horizons and a higher risk tolerance, meaning they’re open to alternative investments.

The hidden complexity of private markets data 

Despite its rapid expansion, Australian limited partners invested in private market funds face a formidable challenge: the sheer complexity and volume of unstructured documents that need to be transformed into actionable data.

In private markets, data is the lifeblood of informed decision-making. With more investors entering the space and AUM and transactions increasing exponentially, the sheer volume of data has skyrocketed.

The problem is not simply the availability of data but how to extract valuable insights from a growing pile of fragmented, unstructured information. Much of this data is still trapped in PDFs, documents, or other hard-to-process formats.

In this environment, investors are finding it increasingly difficult increasingly difficult to navigate portfolio management efficiently.

The three main private markets data challenges include:

• Unstructured data: Data exists in multiple, often incompatible formats, which complicates processing, automation and analysis.
• Fragmented sources: Information is scattered across various platforms and systems, making it difficult to aggregate and organize.
• Resource-intensive processes: Cleaning, normalizing, and analyzing data manually is time-consuming, costly, and prone to errors.
  

These challenges are creating a bottleneck in the portfolio management process, which is paramount in driving private markets investment decision-making.

The continued growth of a private markets portfolio depends heavily on the risk, return, liquidity and exposure profile of the existing investments within the portfolio. Sophisticated limited partners require deeper insights into the underlying asset drivers within funds and their operational value creation.

Unlocking efficiency through automation

To get the most out of this fast-moving market, limited partners must advance at the same rate.

The appetite is there for a more sophisticated approach to minimize time spent acquiring, condensing and analyzing various data points in a dynamic and responsive manner.

Advancements in technology mean that by adopting Artificial Intelligence (AI) and machine-learning techniques, processes for these can now be automated.

This allows limited partners to simplify the demanding workflow of analyzing the return and risk exposure for their alternatives investment portfolio.

As private markets continue to expand, managing the growing volume of data will be critical to staying competitive. The ability to quickly extract and act on insights, without sacrificing accuracy or scale, will separate the leaders from the laggards.

AI and automation offer the key to unlocking the full potential of Australian investors’ private markets portfolios. Those who adopt these technologies will be able to navigate the increasingly complex investment landscape with greater agility, speed, and confidence—ensuring that they are positioned to capitalize on future opportunities.

The growth of private markets is opening new doors for investors. But to walk through them, technology must be embraced, and data must be harnessed.