Valuation

Retail investment in alternative assets has grown dramatically in recent years, but are markets prepared for broader access? Kroll recently hosted the re-launch of the firm’s annual Private Investment Valuation and Compliance Conference, which aimed to address this fundamental question. “The Democratization of Alternative Assets – Intersection of Technology, Governance and Valuation” occurred amidst increased investment and scrutiny into private markets. Attended by more than 150 people from the most prominent investment firms, the conference featured panels with industry-leading private market voices that discussed opportunities and valuation challenges related to the expanding asset class.

The event covered the infrastructure, governance and rigor necessary to support the democratization of private assets—and touched on the importance of independent, credible and frequent valuations to unlocking sustained growth. A fireside chat—with Kroll Managing Director David Larsen and StepStone Private Wealth CEO Bob Long—set the stage on the evolution and public policy related to the expanding asset class before the remaining discussions dove into the private market valuation landscape, emerging technology infrastructure and requisite governance standards.

Panelists asserted that the democratization of private markets has already arrived, but achieving retail market credibility must revolve around developing a sustainable infrastructure that allows for defensible valuations, as frequently as daily. As alternative investments become more commonplace in investment portfolios, making valuation data more widely available—along with setting durable policy around financial reporting—is paramount to enhance investor confidence.

The marriage between traditional valuations—which largely lives within Excel models—and advanced platform models is critical in disseminating private markets data to investors. Conference speakers referenced the Kroll StepStone Private Credit Benchmarks, released in September, which delivers current data-driven analytics to support valuations. In particular, Kroll panelists mentioned that new issuance data is especially of interest to users of the platform looking for a near real-time view into the private markets.

However, panelists stressed that technology—on its own—won’t solve the complexity of valuation infrastructure. Progress depends on combining domain expertise with strong governance and change management, then implementing this in measured increments inside the asset manager. That cadence creates room for bespoke asset characteristics while still moving the market toward credible, frequent and auditable valuations.

Referencing sizeable private market opportunities, panelists discussed the importance of investor education in fully activating growth prospects. Just as investors must be informed of risks and liquidity challenges, they also should be aware of the potential benefits of incorporating alternatives into a diversified portfolio.

This is perhaps most evident in the defined contribution plan space, where private market investments have received mixed reactions since the current administration’s executive order designed to help make them more available to U.S. retirement plans. Panelists agreed that incorporating a moderate allocation of private investments within a diversified portfolio—5 to 15 percent—can sizably increase returns when compounded over the lifecycle of a retirement account. Further, panelists mentioned that Target Date Funds (TDFs)—widely available across plans—would be the most preferred vehicle to implement private market funds rather than enabling investors to directly invest in them. Especially due to the lack of liquidity and potential of knee-jerk reactions during market downturns, TDFs—which can be optimized to reduce private market exposure as investors near retirement—provide a safe haven for investors to tap into private market opportunity.

The concept of clarity—affording investors the data to understand the ebbs and flows of private market valuations—rang through each panel as investment managers aim to bring the asset class to a wider range of retail investors. With data from Kroll’s Private Credit Benchmarks and S&P’s iLEVEL platform, among others, the intersection of technology and valuation has arrived for the private markets.