Alt Goes Mainstream: The Latest on Alternative Investments, WealthTech, & Private Markets
00:19:36 · Michael Sidgmore, Yann Magnan
[00:19:36] S0: that done. Is the industry ready to handle this new way of doing things when it comes to things like evergreen structures? I mean, some of these structures may have daily tickers. Right? So there's daily, certainly monthly frequency rather than quarterly frequency with a lot of these fund structures. Is the industry ready to handle all that? [00:19:56] S1: I think the industry will get ready really, really fast. But as you can imagine on a pure technology standpoint, the implications are just massive. Moving from quarterly to monthly, I mean, that's fine. This is largely doable. I mean, there's definitely a bit of extra stress on the infrastructure, bit of extra cost as well. Moving from monthly to daily, it's a totally different beast. And that's happening as well really fast, actually. It's not new daily evaluation. There's been mutual funds here in The US, UCITS in Europe, and they've been doing daily valuation on public assets for years, and they have started to guide private assets into the mix as well, maybe a bit more recently, but that's happening. But it's growing really, really fast. And you have to make sure that your technology infrastructure is capable of coping with that. And that's something significant. But look, I mean, the industry is very, very resilient. It's moving really fast, lots of very smart people. And what I'm seeing happening is that the guys that are at the forefront of this new trend, I mean, they are on top of it, and and they are doing what needs to be done really, really fast.
00:20:59 · Michael Sidgmore, Yann Magnan
[00:20:59] S0: Well, you mentioned some of the firms that are at the forefront of this trend. They tend to be the largest firms in the industry. One of those firms, the largest firm in the industry by by AUM, works with 73, Blackstone. They use 73 for various funds and valuations on those funds. How did that partnership come about? And when you think about working with a firm like them, what did it take to be able to work with them as well as when you think about what that means for how you construct the infrastructure of the business that probably cascades down to other customers. If you're working with Blackstone, you can work with other large alternative asset managers and then smaller. [00:21:38] S1: Yeah. I mean, very good question. And, of course, a bit difficult for me to answer because that question should be turned to Blackstone. [00:21:44] S0: I had the CTO, John, on the podcast. [00:21:46] S1: Yes. Yeah. Yeah. Yeah. And he's a great guy. Look, what I would say is that I [00:21:53] S0: think
00:21:53 · Michael Sidgmore, Yann Magnan
[00:21:53] S0: think [00:21:53] S1: for these very large clients, a lot is about getting these valuations done faster, but with a higher frequency as well. Faster as in, basically, if you want to report to your LPs, today, it's a common view that the main roadblock in terms of getting the information ready is actually the evaluation process. Everything else accounting and so on can be done as fast as possible at the end of the quarter or at the end of the month. Evaluation process, unless you digitalize it, is the one that will drag the reporting to the LPs the most. So clearly, that's one thing, how to get this process higher frequency faster than... The other thing that we're happening with these large clients, but not only the large clients, by the way, as well is that as we're discussing or like alluding to in the past few minutes, it's also a lot about the data. And what we are seeing happening with our early clients is that they want to make sure that they have a control on their data. They want to make sure that they get all their data standardized in one place to be able to use it for valuation, but for more than that as well. And that's also a key driver of this type of adoption. [00:23:11] S0: On that point, how extensible do you think creating a valuation methodology, leveraging technology and digitalizing that for private equity is then extensible to other asset classes like private credit or infrastructure or secondaries?
00:23:29 · Yann Magnan
[00:23:29] S1: I mean, the thought process is the same. The methodologies and the workflows would be very different from one asset class to another one. You're not thinking about monitoring a company and valuing a company in the same way if you are a large cap private equity investor as compared if you are a early stage venture capital fund, just to take two extremes. Private credit, again, totally different beast. So what I'm saying is that the full process is the same in the sense that you're still receiving data, you need to collect data, you need to standardize data, you need to use that for the evaluation process. But in the nitty gritties, things would be pretty different. And I think that's what enabled us at seventy three Strings to build a product that fits really well with the industry that actually we got into that as consultants. And we had seen many, many use cases. So day one, when we started pushing our valuation platform to the next level in 2020, 2021, what I told to my team, I want to build a platform that could be used for the entire marketplace. And I want to build a platform thinking if ever we are not successful being a SaaS company, we should be using the technology ourselves. And we would be having clients that would be private equity, potentially corporates as well, and private credit. So we need to be able to address all of these use cases. So day one, we built our platform so that it could work with all these use cases. But that meant that, I mean, we spent two years and a half building the platform because there were so many use cases that we have to develop. But... Yeah. So that's the the the coin. So within one specific industry, it's a bit more structured, I would say.
00:25:11 · Michael Sidgmore
[00:25:11] S0: I think that brings rise to a really interesting question. So when you talk about private equity being so different than private credit when it comes to valuations, my mind goes to Howard Marks, the co founder of Oaktree. His most recent memo, he writes these memos, you know, every month roughly. The most recent one was on asset allocation. And what he was basically saying was that there's only two principles in investing, really think about. There's equity and there's debt. Because debt is fixed income. Equity is you're not getting a fixed return. You might have more upside, but there's also downside. And those are two fundamentally different ways of thinking about things. And I think that's a really interesting concept to think about when it comes to valuations and when it comes to thinking about what the atomic unit of value is with valuations. I'll bring in another analogy in private markets is Carta has done this on the cap table side. They started their atomic unit of value was the company's equity. How do you think about the concept of the atomic unit of value in the context of valuation? And to bring it back to the Howard Marks example, the difference in how you'd actually go about thinking about the atomic unit of value when it comes to equity. So all the private equity valuation work you do versus debt, private debt valuation work you do.
00:26:29 · Yann Magnan, Michael Sidgmore
[00:26:29] S1: I'm probably a bit biased in the way I'm looking into this thing. And the reason why I'm a bit biased is because we have developed a technology that can virtually, and in reality actually, extract any type of data point in any type of document and attach a label to it. What that means is that we can collect from a board deck that a venture capital fund would receive. Like if there is 1,000 data points in there, we can collect 1,000 data points. We can put that in the data lake. We can attach a label to it. We can standardize this information. So the reason why I'm saying that I am biased is that to me, the atomic unit of value in this industry is that level of granular data. If you have all this data, there's nothing that you can't do. [00:27:15] S0: Whether it's equity or debt. Whether it's equity [00:27:18] S1: or debt is an instrument, but if you're getting that data from the get everything you need for sure and more. And that's why we start thinking, well, I get all these data, actually, I can probably do much more with that data.