As the pulse of global finance quickens with each technological stride, investors benefit from the coverage offered by private markets and cutting-edge information technologies. And technology has changed nearly every part of the process of investing in private markets over the past decade, not just for the companies receiving investment but for investors too – accessibility is much improved. Every part of the process is digitised, including deal sourcing, execution, and portfolio monitoring. Private markets investment platforms have proliferated in the venture market, private equity, secondaries and more. Data is now abundant and accessible (although this in itself is not without its issues), a step change from a decade ago. Even the operational execution of investments is being reshaped across funds, syndicates, simple agreement for future equity (SAFEs), and further afield.
Yet, beyond the algorithms, platforms, and analytics lies a fascinating communal aspect - investors looking for a community to navigate the complexities of private markets within this new information age.
“In the age of direct investing, family offices and individuals are not mere spectators in the financial markets; they are active participants, shaping their own financial narratives and contributing to the broader evolution of the investment landscape.” Hugo King-Oakley, Leader of Private Markets and Community, GPFO
Democratisation
Indeed, in the not-so-distant past, investing in private markets was primarily the realm of institutions, specialist venture capitalists, and private equity/credit funds. Individuals and family offices were mostly left on the sidelines. Now, every reputable private bank offers a private market platform of sorts, although these vary wildly in quality and options.
This paradigm shift is characterised by a departure from traditional investment models that rely heavily on intermediaries and complex structures such as the 60:40 portfolio construction model. As interest and appetite for alternatives and private markets have grown, so have options and solutions - offering more accessible and direct approaches for individuals. This democratisation of private markets comes as part of a wider democratisation of finance facilitated by technological advancements, which has been a driving force behind this transformation. The rise of online platforms, mobile applications, and the accessibility of market information has dismantled barriers that once hindered individual participation.
This is exemplified in available data, especially in the family office space. Goldman Sachs’ ‘Widening the Aperture Report’ found that over 90% of family offices have venture capital exposure. Indeed private equity investment is now commonplace and expected to follow an upward trajectory.
In the age of direct investing, family offices, and individuals are not mere spectators in the financial markets; they are active participants, shaping their own financial narratives and contributing to the broader evolution of the investment landscape.
Platforms, data, and operations
Data on private markets used to be scarce. Now, it is just lagged and patchy. Specialised data providers and analytics firms have emerged, offering datasets and insights into private markets. Data has catalysed investment, and as it is democratised, investors are empowered in their due diligence where previously uncertainty on market metrics led to unpalatable risk. Models and methodologies are becoming embedded into decision making, and more firms offer data-led investment strategies. Moreover, researchers have been working towards standardising reporting. At GPFO, we have contributed to this initiative with our family office private markets benchmarking research and produced data that is well used.
Operations - often unglamorous - have been beautified by technology. Whether that is execution focused, using simpler tools like digital signatures or increased comfort with video calls for due diligence, even to the more complex KYC processes and digital syndicates for funding rounds; increasingly, we see WealthTech solutions offering portfolio management platform features focused on private markets. All of this makes portfolio monitoring and reporting simpler and more efficient.
On the surface, sourcing relevant deal flow for investors seems a problem solved simply by technology. Online platforms and aggregators of funds and direct investments can host a plethora of investment opportunities, reducing information asymmetry and helping investors of all stripes source deal flow. However, WealthTech 2024 Annual Report 42 THE BUSINESS STRATEGY the explosion in online platforms has been accompanied by an erosion of trust as investors question transparency, accountability, and quality of due diligence (which differs greatly between platforms), as well as the legitimacy of deals presented. Many believe that ‘if it is on an online deal platform, it is because it could not be funded elsewhere’. This is perhaps the most troubled and divisive innovation in private markets.
But this perception is changing slowly. More institutions have lent their weight to platforms, diligence and processes are improving, and trust in online platforms is following. However, it is a phenomenon that is not changing fast enough for many in the private wealth space and, therefore, has driven increased demand for private communities in both peer-to-peer and interest-specific communities. Many private investors in private markets rely heavily on personal relationships, which is why many high-net-worth-individuals (HNWIs) and family offices prefer co-investment. This is strongly supported by the data, especially for family offices. Kaufman Fellows and First Republic found that 82% of family offices conduct co-investments in venture capital. GPFO and Moonfare research showed 27% of family offices use co-investment as the primary way of accessing venture capital, 66% of which co-invest primarily with other family offices.
Community perspective
With this focus on community, where human relationships are key, it is worth exploring how technology can help support and enhance these relationships rather than replace them.
The technological revolution in direct investing extends beyond individual empowerment, delving into the realm of community engagement. Communities have become increasingly digitally connected and have emerged as powerful catalysts in bringing together like-minded investors, creating virtual communities that transcend geographical boundaries. These digital forums serve as hubs where investors can share insights, discuss strategies, and collectively navigate the complexities of financial markets. The democratisation of information through technology has transformed investing from a solitary pursuit into a collaborative venture, fostering a sense of camaraderie among individuals with diverse backgrounds and experiences.
Technological facilitation has paved the way for innovative ventures to thrive, breaking away from traditional funding models. Successful case studies abound, showcasing how communities of investors have fuelled the growth of startups and innovative projects that may have struggled to secure financing through conventional channels. These success stories underscore the transformative impact of technology in connecting investors and channelling collective financial support toward ventures that align with the community’s values and goals.
While the benefits of community-centric investing are undeniable, it is essential to acknowledge potential challenges that may arise in this interconnected landscape. By leveraging technology to support and sustain these digital communities, the world of direct investing is evolving into a dynamic and interconnected ecosystem that thrives on collective wisdom and shared success.
Interested in reading the full report? You can read this edition of the WealthTech 2024 Annual Report online here.
