73 Strings' Yann Magnan - unlocking valuation intelligence in private markets

00:01:03 · Michael SidgmorePlay from here

[00:01:03] S1: This episode of Alt Goes Mainstream is brought to you by Ultimus, the full service fund administrator and transfer agent powering asset managers in private and public markets. As Alt Goes Mainstream, you need real expertise to handle complex fund structures, connect with key distribution partners, and handle sophisticated compliance, reporting, and transparency demands. That's Ultimus. High-tech, high touch solutions for over 450 clients and 2,500 funds with over 775,000,000,000 in assets under administration. Backed by an expert team of over 1,200 employees, they place client service at the core of their business, helping you navigate complexity during your fund structuring or launch, and then supporting you through every stage of growth. Whether you're already in the market or thinking about entering private wealth, you can trust their team's deep expertise in retail alternatives to help you reach your goals. Learn more at ultimusfundsolutions.com or email info@ultimusfundsolutions.com. Welcome back to the Alt Goes Mainstream Podcast. Today's episode is with a founder who is building mission critical valuation and portfolio monitoring software for alternative asset managers. We're joined by Yann Magnan, the co founder and CEO of seventy three Strings, to discuss how valuation work and portfolio monitoring is moving from manual to automated and why that's so important for the industry. Seventy three Strings has leveraged AI and automation to more seamlessly and cost effectively extract data, monitor portfolios, and streamline middle office processes for valuations. Seventy three Strings works with a number of the industry's top alternative asset managers and has received investment from Blackstone, Growth Equity at Goldman Sachs Alternatives, Hamilton Lane, Golub, Fidelity International Strategic Ventures, and Broadhaven Ventures, amongst others. Yann has brought his experience as a senior member of the Duff and Phelps team, where he was EMEA market leader and member of the global operating committee and as a partner at EY's Transaction Advisory Services to help bring valuation and portfolio monitoring solutions into the mainstream. Yann and I had a fascinating conversation about how technology innovation and AI are impacting private markets and perspectives on valuation work today.

00:03:03 · Michael Sidgmore, Yann MagnanPlay from here

Thanks, Yann, for coming on the show to share your expertise, insights, and passion about private markets. [00:03:15] S0: Yann, welcome to Alt Goes Mainstream Podcast. Michael, very happy to be here with you today. [00:03:20] S1: Pleasure to have you back. You were on the podcast about a year ago. A lot has changed in the world of private markets. A lot has changed in the world of valuations. I want to get to all of that, and I think it's a really important time to be talking about things as it relates to post investment in private markets, evergreen funds, valuations, more transparency around valuation, all those things are things you're doing, and those are top of mind for both GPs and LPs right now. First, though, I want to just ground the conversation in your background. How did you get to where you are today? And maybe if you could also share the evolution in the way valuation and portfolio monitoring works. I think that's emblematic of where we are in private markets. You did things manually, now you're doing them in an automated way. So we'd love to start there.

00:04:11 · Yann MagnanPlay from here

[00:04:11] S0: I started my career twenty five years ago. I started my career as a corporate finance and valuation consultant at first at EY before in France, then I moved to a US consultancy called at that point in time Duff and Phelps, and now known by the name of Kroll. As you rightly pointed out, everything that I was doing at that point in time in the early days, everything that I was overseeing my teams doing back a few years later, and then everything that I was seeing my clients doing at that point in time as well, everything was when it comes to valuation of non listed assets, everything was manual, manual as in Google search, Excel and email. As a person, I'm fairly nervous and I like efficiency. I was thinking that does not really work. Excel, Google search, email, think twenty fifteen, 2018, 2020. You start hearing about the cloud industry. You start hearing about the generic AI to start with. And you're just thinking there must be ways to do things differently. There must be ways to create efficiencies. And there must be ways to do valuation in a framework that is governed and auditable and traceable so that at the end of the day, you can develop this valuation in the best possible way, in the fastest possible way, in the most structured and auditable and traceable type of way. So with that as an idea and as a vision with a few of my colleagues in 2020, we started seventy three Strings and the play was, the idea was let's develop the platforms. Actually, have two, one that covers equity instrument and the other one that covers credit instruments, different valuation methodologies. So let's create platforms that will basically facilitate the evaluation work that would create that governed and structured framework that the managers would be able to use so that they can continue to grow and grow pretty fast. And as you know, the industry has been growing, what, 1015% year over year, I would say. The ads industry at large. So enable this industry, these managers to grow and support their valuation processes and the middle office processes in a way that is scalable for them. We started in the summer of twenty twenty. We've had a pretty nice ride since then. And we've seen something happen actually, and we've had that conversation quite a few times, you and I. We've seen something happen in the past twelve months.

00:06:24 · Yann MagnanPlay from here

I mean, it started a bit earlier than that, I would say two years ago. But really in the past twelve months, what we've seen happen is that on top of the growth of the industry, we've also seen the trend towards evergreen funds and private capital GPs trying to attract retained investors into their capital. We've seen that accelerate dramatically in the past year. And that creates a lot of new challenges for these managers on multiple fronts, not just on valuation and middle office, but in particular when it comes to middle office and valuation. Because suddenly you have people like you and me that invest into these funds and we are very happy to do that. We are very happy to be able to invest capital in an industry that generates significant return as long as you pick the managers appropriately. But the thing is that when we do that, we want to make sure that we can do some arbitrage in our portfolio. We want to make sure that we can enter in this type of funds almost at any point in time. We want to make sure quite often that we want to exit as well, as we have seen lately, almost at any point in time. And that changes a lot the way our clients are basically operating because you're not anymore in that closed ended fund where capital comes in and capital comes out at the end of the fund. You're in that environment where transactions are happening across the life of a fund. And it's not just that these valuations are being used for reporting by the way, these valuations are being used for transactions. That creates another challenge to our clients.

00:07:53 · Michael SidgmorePlay from here

[00:07:53] S1: A number of interesting points that I want to unpack. But on the last point that you just made, clients are using these for transactions, both in terms of trying to make sense of maybe they need to sell an asset, particularly if it's in an evergreen, because they need to be able to continue to season that portfolio, add new assets to the portfolio, exit other assets. You have the growth of not just evergreens, but of continuation vehicles. How do you think about the importance of valuations today relative to the private capital industry when you were in it at Kroll or Duff and Phelps, etcetera. Are there things that have really changed about how both GPs and LPs are thinking about valuations and how they think about doing them?

00:08:40 · Yann MagnanPlay from here

[00:08:40] S0: Dramatically, actually. Back a few years ago, valuation was mostly a reporting exercise, a very important one. You want to make sure that your institutional LPs get a robust reporting every time that they want this robust reporting, typically quarterly basis. But what has changed with the trends towards Italy investors and evergreen funds is that people are suddenly transacting on these evaluations. And when they are transacting on these valuations, actually they are doing two things. They want to sell an exit, but they want to sell an exit comparing and understanding what's the value of their illiquid holdings as compared to the value of their liquid holdings. So they are comparing both. And so what that means is that we are moving from the world where valuations of non listed assets were very isolated. They were reporting information into a world where these relations need to resemble and to mimic as close as possible the public world. It's very interesting because when we speak to clients about evergreen retail, the first question is about technology and creating efficiency. That's true. That's a very important one. But the second question, very important as well, is that the philosophy that you are applying to develop these valuations is very, very different as well. You have to be much closer to how the market operate because if you don't and if you create a valuation that is theoretical, maybe slightly on the more cautious side of things, you as a manager take the risk that some of your retail investors are going to come to you and tell you, well, I don't understand. I transacted on this valuation based on information you provided me with. But actually it might have been slightly biased, not wrong, but slightly on the more cautious side of things. If you had told me that it was not the case, I would maybe have taken a different decision. So the entire philosophy is also changing.