The Intersection of Private Markets Valuations and Technology

In the private markets, there are many ways to value companies against public and private proxies. But, until recently, there wasn't a standardized, scalable way to value companies across the growing number of strategies and sub-strategies that make up the broader private markets universe. Now, that's changing. 

Our Head of Technology Solutions Griff Norville caught up with Director of Valuation Santiago Rivera to discuss the latest wave of innovation shaping the private markets investment landscape and how we’re putting new, exciting technologies to work. They also dive into the importance of standardizing the valuation process to deliver efficiency and transparency to clients at scale (a move akin to using many basic calculators to value individual companies to using one unified, contextual calculator to value all private companies). 

Q (Rivera): Something we’re very proud of at Hamilton Lane is our data advantage. Can you explain what this is and how it works? 

A (Norville): Our data advantage comes from an ever-growing feedback loop of pre-investment and post-investment data, spanning all private markets strategies (for more on the inner workings of our vast private markets database, read (“Is Cobalt the Digital DJ of the Private Markets”). At a high level, the more fund- and deal-level data we collect as a firm, the more we can deliver to our clients in terms of insightful market research, investment due diligence, portfolio reporting analytics, valuation estimates, and so on. 

To maintain our data advantage and position within the market, we invest in, partner with and integrate the latest private markets fintech companies into our firm’s tech stack. Our investors need to be extremely confident in what we're reporting to them, and we need to do it accurately and on (or ahead of) schedule. As the private markets continue to evolve and reporting moves from quarterly valuations to more frequent valuations on which timely fundraising, investment and liquidity decisions are made, investors are right to have high expectations. 

Q (Norville): We’re going to switch roles now... I’ll take over as the interviewer so we can delve further into valuations. To start, can you tell us about your part of the business and why investors can trust these valuations? 

A (Rivera): Absolutely. I focus specifically on the direct side of the business for which each strategy has different valuation approaches and best practices. Our team oversees billions of dollars in investments across credit, equity, real assets and other private market strategies each year. Investors can trust these valuations because we have systematized the process using data and technology to value everything we hold in a highly standardized and operationally efficient way. 

A quick look backwards... before these innovations enabled what I'll call a "virtuous feedback loop," investors were limited to valuing companies using public data (e.g., subscription-based data). They created specialized calculations using spreadsheets to derive valuations based on the data available to them at that moment in time. You can think of it as taking a timed test using only what you studied and a calculator built just for that exam. While overarching rules and regulations informed the calculations (e.g., what you studied), the process was often manual and resource intensive (because your calculator was primed for that exam and all the results are stuck inside the calculator). So, we partnered with 73 Strings to standardize the process across all private market strategies, creating a unified, contextual calculator that integrates all the rules and best practices to efficiently output timely, accurate valuations rich with accessible data. This unified approach doesn’t just streamline valuations, it also empowers us to run scenario analyses across portfolios, which helps us navigate market volatility with greater confidence and foresight. 

Now, we can continually value private companies at scale using data from our $956.1 billion¹ in existing assets under management and supervision and billions more in new deal flow each year. And our partnerships with cutting-edge private markets fintech platforms like 73 Strings are helping us revolutionize and scale valuation and portfolio monitoring with AI.

Q (Norville): The calculator analogy is a helpful way to break down how we used to do things, and where the next wave of technology adoption is taking us. Can you explain how our partnership with 73 Strings can help investors?

A (Rivera): Let me put it this way: The best way to win a race is to stay one step ahead. Integrating 73 Strings, which uses AI to process and contextualize valuation data, gives our clients the speed, transparency and accuracy they need to value private markets portfolios efficiently. It also gives us a competitive advantage.

As the industry evolves, preferences do too. Over the past five years, investor preferences have shifted from wanting to know if valuations comply with regulatory standards to how technology is being used to quickly adapt to new regulations as they roll out. Investors want to know that valuations are always accurate and up to date, so they can act quickly and impactfully. By partnering with 73 Strings, we help investors have confidence in valuations; they can better evaluate how their investments benchmark against the market and better understand data-driven trends across the asset class. 

Q (Norville): Last one for today. How does technology differentiate our direct investments platform?

A (Rivera): We have a unique position in the market as a direct investor with access to what we believe is the most comprehensive private markets database in the industry. Add that to incoming direct investments data and our competitive advantage grows. On an annual basis, we diligence more than $30 billion in new deal flow across primary fund commitments and secondary transactions and have extensive private markets data covering $821.2 billion in assets under supervision.¹ This gives us a leg up on the competition. But data is only as good as the technology into which it feeds (and vice versa). 

So, we integrated accounting best practices into our direct investments platform using leading technology and private markets data to give investors richer insights. Not only does this integration improve financial reporting, but it also makes comparing valuations across companies, deals and funds more efficient (which regulators like too). 

We believe that best-in-class data and technology are now table stakes for private markets investing and that our ability to systematically capture, clean and contextualize valuation data gives our clients access to actionable insights. When it comes to making and reporting on timely direct investments, this type of data-driven insight can be a valuable differentiator. 

Connect with us to learn more about our data-driven technology solutions.