If you’re looking for another technical prediction for alternative assets in 2021 post (one that is largely the same as others), read this one at your own risk. I’d rather be wrong about all but a single big thematic one than I would keep it conservative and regurgitate what others have filled search results up with. Track records are all the rage, and ours is one rooted in having seen broader thematic shifts, so we’re sticking to our roots. Here we go with my #riskybets for 2021: 

  1. #neverforget WallStreetBets

“But these are alternatives and not accessible to retail investors”, you say. And you’d be right, but this is something bigger than Robinhood and Reddit and GameStop and Silver, for that matter. This is a new generation and it’s here to stay. The status quo/” system” is the target, and nothing is out of bounds. People are frustrated, they feel left out, and there’s more money behind it than many institutions feel comfortable with. Its impact may not be revolutionary, but it will absolutely be evolutionary and it will ripple into less liquid, less accessible markets.

  1. A new category of competitor will emerge that won’t be taken as seriously as they should, and will go on to make even the oldest and most successful firms feel uncomfortable

It will be started by Robert Downey, Jr. Not really (maybe), but you get the idea.

WallStreetBets is the climax of a story about the evil empire against the rebels. Wall Street has been reluctant to accept that certain companies (take Tesla, for example) could sustain valuations that violate everything the market has (mostly) agreed upon historically. GameStop may not be able to, but Tesla has, and not because of fundamentals. Millennials don’t care about valuation, they don’t care about research upgrades/downgrades, nor price targets, nor much else that the traditional Wall Street machine subscribes to. They buy stocks that mean something to them and which line up with their vision for the future; they buy Teslas because they think they’re cool, and they buy Virgin Galactic (SPCE) because their lives will see commercial space travel become mainstream.

The status quo is right until it’s wrong, and the ways in which capital is raised for private markets will begin to change to reflect opportunities that are “cool” vs. fundamentally sound. They’ll go after ambitious, world-changing opportunities, and they’ll break all of the rules as they do it. This won’t require extensive track records to attain; “cool” people will emerge with access to “cool” investment opportunities, and they’ll have legs.

  1. ESG/Impact/JEDI won’t be table stakes; those late to the game will struggle to keep up with returns generated by leaders in this emerging category

Public market ESG-focused funds have begun outperforming their non-ESG counterparts and Millennials are skipping starter homes and buying mansions. Turns out, as I recently heard it put, that millennials are more “woke” than we gave them credit for. They speak with their wallets, and the massive generational transfer of wealth has begun. Their assets are here to stay, they’re growing as a proportion of total assets, and those assets may not always be pointed in the same direction they were pre-transfer; they’re focused on the future and ESG/Impact/JEDI encapsulates the driving forces behind their vision for the future. Be prepared to tell them a story, make it meaningful beyond returns (have an impact!), and be prepared to be accountable to them if there isn’t support for returns and impact. (Support = data.)

Be prepared to struggle with this data support early on. We’ve heard a great deal from the market about the challenges that still exist in the early innings of this evolution, and they’re mostly around the ability to produce the data for ALL companies, and the lack of standards in how the data is defined, measured and reported on.

Be prepared for technology to solve these challenges quickly, so above all things be prepared.

  1. Annual Meetings will never be the same, and will mark the beginning of a new era of GP-LP engagement

We’ve believed for years that technology would begin moving to the forefront of this relationship, and it’s a welcome sight. But we’re just getting started; technology will take on an increasing role and everyone will be better off for it.

Annual Meetings are the most immediate problem that technology is evolving quickly to solve, but it won’t stop there. Information will be more readily available, and technology will begin playing a bigger part in the matchmaking of GPs and LPs. Truth is that everybody wins somehow in this, so the genie is simply not going back in the bottle.

  1. Public market liquidity will be front and center. Again.

Risk is on in public markets and we’re told that won’t change for years. IPOs, SPACs, and other creative ways to access risk-on equity markets will continue to provide liquidity at premiums, and preparing those assets will be of utmost importance.

Firms best positioned in terms of the scale of portfolio companies and application of technology (ie solar/green/EV) to access public market liquidity will dominate fundraising and are likely to provide liquidity sooner, which will further help them dominate fundraising — a virtuous cycle!

  1. 2021 will be the year that strategic technology roles emerge in Private Markets

Get ready to meet some new colleagues! Globally technology has taken an even bigger, more important role in our lives, but certain parts of the world had been a bit slower to adopt technology ahead of Covid. They scrambled to catch up, but they’re going on the offensive at the same time. Private capital markets are one of these areas and will go on the offensive hiring technology-focused executives that begin to get far more strategic about using technology as a differentiator.

A traditional crm was built for general ‘customer’ scenarios

Software platforms have made the world a better place by making work a better place. Indeed the world is better off when people enjoy their jobs even marginally more, and workplace applications on big CRM platforms like Salesforce.com have done that and much more.

But the potential that platforms like these offer presents diminishing returns: once the platform provider has engineered too many industry specific components into its platform, its usefulness for other industries begins to be threatened, and with that so do the usefulness of the component tools built into the platform.

So it is with the CRM category that Salesforce.com has defined: it is generic enough to work for many industries, and yet still offers the potential for others to round off the edges and nail more vertically-oriented and extremely tailored software solutions.

Private capital markets are actually a great demonstration of this dynamic. Where generic CRM platforms simplify — appropriately so — to assume there’s a business, a customer, a sale, and service of that customer, there are a few industry-specific pieces that are missing.

Take for example, that investors become customers by investing through legal entities the GP raises. It’s a subtle but important nuance that just doesn’t make sense at a platform-as-a-service level (because it’s overly complicated for a simple one-time sale that many industries require), but which can easily be added without 10 years or software engineering. Once provided, the rest of the platform’s components become tremendously powerful again and you’re set to take over the world.

As a traditional CRM in our pillars methodology, these nuances must be present to properly account for investors in these legal entities, potential target companies and which are owned by these entities, the context of all interactions with these parties (as well as the appropriate overlap, ie co-investments), and how you’re arriving at finding these opportunities on both sides of the equation, such that you’re able to piece together what’s effective and what’s not. Not just because we say so, but because these are the very relationships and data that are key to the motivation behind a CRM in any industry.

It’s critical, too, that the valuable publicly-available information that helps to enrich CRM systems and save users painful steps of entering it themselves is fully-integrated at the platform level.

Again, look no further than the 3,000+ pre-built integrations that Salesforce.com — the creator of the CRM platform concept — has at a platform level to do so, and which only exists by way of holding just short of overly-specifying certain industry workflows that would present challenges to properly integrate.

Stakeholder reporting and communication (investor relations) draws on a range of datasets

The traditional “customer service” model of CRM systems once again makes overly-simplified assumptions about the customer relationship when applied to private capital markets.

In fifteen years I personally have yet to hear the terms “warranty” or “service call” in this market because it’s just not the same. But make no mistake, as uncomfortable as it may be to say aloud, customer service is more important now than ever and it’s constantly happening; the industry is, after all, considered to be a financial “service”.

As it turns out, that service is primarily information-based — it’s driven by data and takes the form of reports and analysis that drive decisions, and then end up again in investor-facing reports and analysis.

The foundational elements of a private capital markets CRM must be built such that they accommodate this data (like we discussed above), but so too that it can accommodate additional supporting data that investors (customers!) need in the context of service.

Oftentimes this supporting data — financial metrics and time-based values, for example — is believed not to meet the traditional definition of CRM and the natural thought is “well, better do this in Excel!”.

While I happen to believe Excel is still the greatest software application ever built, its introduction to this value chain we’ve discussed herein actually creates the problem many firms suffer from: key data needed to provide customer service (again: effectively the entirety of a firm’s reports and analysis) is now in disparate systems and detached.

Both of those dynamics are important and distinct: not only is this supplemental data disparate, but when brought together there is no logical association that can be made between the two data sets.

Allow me, then, to make the point very simply: not only can this financial and time-based value data (you may be thinking about is as “portfolio monitoring” or “accounting”) be a part of a CRM, it is arguably the most important part of a CRM because it’s at the core of what providing service to the customer entails — information that comes out of data!

Firms need a digital method to engage stakeholders (ie investor portals)

Investor portals are not new; in fact, for many of us — including myself — they conjure up horrifying nightmares in which we’re aimlessly guessing at folders to find the newest document we need.

So in lies the opportunity: not only have the portals we’ve come to hate not simplified the process of acquiring information, they’ve failed to create an entirely new experience that is “customer service” driven.

To be fair, this is not a B2C market where you’d be long out of business for not having focused on customer service and thus the customer’s technology-driven experience. But don’t expect to be around too much longer if you aren’t thinking about this shift.

Today’s institutional investors increasingly expect this same consumer-like experience, and a massive opportunity is being missed by not providing it. It’s not about providing them the experience they desire; it’s more about the ability to measure engagement that is had in return.

Put simply: what’s keeping the market from providing this experience is the availability of the information that’s required to create the service that provides the experience.

If you’ve hung in this long, you know that by focusing on your CRM, you have the data that’s required to manage the customer relationship and the technology-driven experience through which that information is shared to create a differentiated and opportunistic customer experience.

Private Capital Markets