Oksana Tiedt, head of funds at family office Lennertz & Co, speaks with Funds Europe about the uses of private-markets data – and reveals a new iteration of ‘ESG’ for family offices.
There is a deluge of data in private markets that helps investors make decisions – at least mostly. Depending on the sector, the strategy, or the niche, there could also be a drought.
Oksana Tiedt, head of funds at family office Lennertz & Co, says: “The amount of data available is incredibly sector-specific. Some industries are abundant in proof points and can, at times, be easier waters to navigate than industries less in the public focus. Even within private markets, the data we work with can sometimes still be beholden to global trends.”
More data is available in the private equity segment, while in growth or venture strategies, much less data is available, even sometimes none, she says.
Private equity portfolio company data reported by the industry differs dramatically, according to Tiedt. “Some key income statement items might be underreported or in some cases not reported at all. Not all balance sheet items might be laid out, and the capital intensity of businesses is often difficult to assess. There are some pain points that data cannot penetrate with great upside for investors.”
However, as the dial turns, says Tiedt, she expects that the advancement of technology such as AI and the increase in interest across private equity will see data come to dominate the industry, and its collection and interpretation “will become second nature to most”.
“With every year and every fund cycle, more data becomes readily available. However, the data means nothing without calculated professionals to back it up with their experience and analytics.”
Cleaning and interpretation of data are the major issues, she says, while collecting and inputting data is relatively standardised.
Valuations often open to interpretation
Based in Hamburg, Lennertz & Co is a family office that also offers third-party investment services. The firm invests in funds and with other managers.
One issue for the industry is analysing and comparing to other funds that might be reporting findings in a different format or dataset, says Tiedt.
“Valuations often are open to interpretation, as are the numbers in the value-creation analysis that private equity funds tend to provide investors.
“In venture capital, reporting is very different from private equity. It often lacks core financial details that you would otherwise have. Valuations are based on funding rounds and not company fundamentals, and this must be considered when making data-driven decisions. Not all data is made equal or even compatible.”
Tiedt explains that Lennertz is currently looking to invest in a tech-focused private equity fund that invests in mid-size software businesses. Several funds pursue this strategy, and it was key for the investment team to understand various ways to unlock the “upper echelons of value creation” by learning from these funds.
“So, we analysed various portfolio companies’ performance through a rigorous set of metrics, isolating drivers of value creation among the funds and identifying which ones focused more on growth and which on operations or other key KPIs that would complement and balance what we want to create,” said Tiedt.
Deep-diving into data
She explains that Lennertz has a broad database that follows the developments of portfolio companies across all its funds for the entire duration of their investment period.
Due to data quality, this needs to be manually adjusted. However, the team manages to pull out the overall trends – such as growth, margins, valuations, and debt levels – to produce high-level analysis which then can go on to inform Lennertz’s wider investment decisions and build on existing knowledge.
She adds that for the more niche products – such as impact and blockchain funds – the team dives deeper into the portfolios, as macro trends are less relevant.
“With these types of alt-funds it is all about the performance of individual companies – these are what set you apart from other funds,” says Tiedt.
Tiedt says data is “foundational” in Lennertz’s decision making, serving as the “first real test in the assessment process”. Then the team uses this data to identify the funds that fit the expected investment performance.
“Valuations are based on funding rounds and not company fundamentals, and this must be considered when making data-driven decisions”
Oksana Tiedt
“We review each fund against an index and then against similar funds in our portfolio, where we have more mature datasets.
“From this point, it becomes a combination of high-level qualitative and quantitative analysis, allowing us to do a deeper dive into the portfolio. We then map various trends across the portfolio and other strategic and structural considerations vital to delivering a bespoke product for our clients,” says Tiedt.
Asked if the provision of private markets data had become more automated, she said: “There are now many third-party service providers that offer in-depth inputs and analytical data for large parts of the private markets, including a host of private comps and indexes.”
Asked also if the private markets world offered sufficient indexation, as is found in public markets where a plethora of indices exist, Tiedt said: “It’s not so much the lack of benchmarking, it is that not all the data is reliable and relevant for specific managers. Therefore, one ends up creating their own set of more nuanced benchmarks that are more tailored to specific questions on a given fund or strategy.”
The new ESG for family offices
ESG investing is vital for family offices, says Tiedt, adding that many family offices have their own stringent ESG requirements, both internally and for external managers.
“However, in the current climate, ESG is shifting. We are seeing a rise in Energy, Security & Geopolitics – and this for many is becoming the new ‘ESG’.”
