What facilities of data collection do you believe will become prevalent in a more stringent market?
While navigating the extreme volatility in the current market, data collection facilities will be geared toward traversing three key mega trends. The first is the emerging convergent industry model. The financial, administrative, and advisory sectors are morphing together to create a new business model that will require a more integration-based approach to data collection.
Secondly, sovereign wealth funds (SWFs) are looking to shift more in private equity investment. This transition will demand greater due diligence around compliance and guidelines.
Finally, ESG conditions are becoming an important facet of SWF investing. As such, many firms have set out to eliminate their carbon emissions by 2050. All these trends require an evolved level of data analysis that will set the course for data collection in the future.
How can clients utilize and incorporate data to navigate market turbulence, particularly vehicles with lower-risk tolerances like SWFs?
Future data collection will need to introduce a new tool kit, ensuring data is not only collected, but organized in a way that can be assessed efficiently and offers investment insights. New technologies will play a big part, helping to deliver a deeper form of data retention. The industry demands data-driver models that incorporate traditional and non-traditional research sources. For example, social media can now serve as an insightful resource. Moreover, the industry must look for ways to blend machine learning, such as AI, and human efforts. These practices work best when automation is performed with AI to optimize data gathering, and then humans weigh in on analysis.
Can sustainability extend to data collection? If so, how do these changes vary for funds with more robust regulations?
Sustainability initiatives are challenging for more regulated clients, such as SWFs. Now, information linking ESG resources and financial performance lacks consistency and transparency. We see many initiatives around regulations to establish more transparency and even create a potential benchmark.
One initiative is ESG data convergence, which would demand both GPs and LPs agree to report and collect the same ESG metrics, from board diversity to carbon emissions. Ultimately, it is a matter of defining the data points that can be collected and monitored in the same way, then normalizing them. It isn’t easy, but there is a lot of attention around the topic.
What impact do you envision this form of sustainability practice having on the private sector as a whole, or the data collection industry specifically?
Data collection around ESG will influence other sectors by providing comparable information to the private sector and establishing a coherent marketing approach. These sustainability practices will also need to be specific to the client. The same data points won’t be relevant across all strategies in the private sector. It will be about identifying which data points are relevant to the specific underlying assets.
This article was originally published in Preqin’s Sovereign Wealth Funds Report.