Data has almost no limits for its usefulness – but private markets are still playing catch-up in their technology, says Will Nicoll, the recently appointed head of Royal London Asset Management’s private markets business.
Royal London Asset Management (RLAM) has begun exploring how it will deliver illiquid assets to clients, a move that reflects wider interest in private markets among fund managers who are largely rooted in public markets investing.
Last year RLAM appointed Will Nicoll as head of private assets. He is now tasked with leading the build-up of the firm’s private assets business.
Nicoll, who took up the role in October 2023, was previously head of private and alternative assets at M&G Investments and joined RLAM – which manages £162 billion of assets in equity, bond and liquidity funds – after the firm viewed private markets as becoming more important for institutional portfolios. The firm also felt that current market conditions – such as the increase in interest rates and the normalisation of bond markets – provided a conducive entry point for the business.
“We are very keen to offer all our clients the widest choice of assets and diversified returns,” says Nicoll. “The market is continuing to develop and we are looking at all ways of getting illiquid assets to clients whether that is through a particular fund structure, listed vehicles or through a technological answer using a blockchain.”
Blockchain and the related tokenisation of assets are being considerably explored by fund management firms and could be conducive to private markets fund managers, particularly as they embark on expanding the distribution of these capabilities to less sophisticated investors.
Yet for all the promises of technology and digital assets, processes in private markets continue to be viewed as archaic in comparison to public markets. Nicoll agrees that data management processes within private markets are traditionally very manual, but he says they are improving.
“As the private markets developed there was almost no system support and it has taken quite a long time for systems to catch up. Data management is always getting better but it is fair to say that data management remains more difficult in private markets than in public and that there are still no easily accessible systems that can cope with all kinds of private markets,” he says.
“Completely different” data
The ability for funds to make better investment decisions using technology has improved, says Nicoll, but only “to some extent”.
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“Much of the issue is that the data does not come in set formats and each market is interested in slightly different – or completely different – blocks of data. There is almost no limit to the amount of data that might be interesting or useful for some future transaction or that might give you an edge in understanding a market, company or management better. We continue to improve but can always do better.”
Asked if data and automation had improved enough to open up a wider range of markets, sectors or themes for private-markets specialists, he says: “Almost – but not quite yet”.
In reference to the “democratisation” of private assets – whereby ‘semi-liquid’ funds such as the European Long-term Investment Fund, or Eltif, allow firms to target smaller and less sophisticated investors – he agrees that one challenge will be to offer valuations on a more frequent level than private-markets funds currently produce them.
“Valuation and price discovery is such an important part of any market and we will need to continue to improve. Fortunately, as the markets grow, secondary trading also becomes more standard which makes some of these issues less problematic.”
Secondary markets – widely viewed to be booming – are where primary investors in private assets can sell their holdings to others, lessening the long lock-up periods for cash that are a feature of private markets investing.
“More difficult to rely on IRR”
With this increase in valuation frequency and the extension of the investor base, some in the industry question whether the internal rate of return – or the ‘IRR – is any longer adequate as a valuation tool. The argument generally boils down to how reliable IRR is, given the long-term nature of investments. The full return on investment – which is not known until an investor exits years later – may differ from intermediate IRRs along an asset’s lifespan.
“As the private markets democratise it is going to be more difficult just to rely on IRR as the measure of success. There is no reason for the IRR not to continue to be used in markets where it has been for years, but it may not suit a less sophisticated investor base,” says Nicoll.
Market observers, peer groups and rival firms will no doubt watch with interest how Nicoll confronts these challenges as RLAM ploughs into private markets. Nicoll can rely on 20 years of experience in the asset management industry, including working as a head of fixed income, and at M&G he oversaw a team that ran £70 billion of assets.
