The Whole Is Greater Than the Sum of Its Parts: A New Model for Private Markets

Earlier this year CfC St. Moritz, I argued that private markets had reached an inflection point. It has been losing value because of a problem so basic it's embarrassing.

The industry has spent years responding to operational complexity firm by firm, platform by platform, problem by problem. Those efforts have produced meaningful advancement and growth, but they have not produced an efficient market. Almost everyday, I talk to someone who tells me how frustrated they are that every institution is “standardizing” within its own walls or with a select cohort of firms, which inevitably is creating yet another standard the rest of the ecosystem must accommodate. It’s expensive. It’s cumbersome. It’s wholly inefficient.

The paradox confronting private markets is that a solution can work perfectly for one firm or a group of institutions – operationalizing and simplifying their processes – but ultimately makes the market more fragmented and less effective. We can continue building proprietary solutions that optimize for the individual, or we can connect complementary capabilities for non-differentiated services to create infrastructure that serves the collective.

Our recently announced collaboration between DTCC and iCapital demonstrates two firms believing that together, we can move the market toward the latter. By bringing together DTCC’s infrastructure, processing capabilities and unmatched network of participants with iCapital’s front end solutions, investment workflows and extensive network of advisors and asset managers, we hope to connect data, operations and participants across the private investment lifecycle. Our initial work includes further integrating DTCC’s Alternative Investment Product, or AIP, with iCapital’s platform across transaction processing, data exchange, access, administration and reporting.

The paradox confronting private markets is that a solution can work perfectly for one firm or a group of institutions – operationalizing and simplifying their processes – but ultimately makes the market more fragmented and less effective.

The significance of this collaboration is not simply that two firms are working together. It is that neither is attempting to recreate what the other already does well. Each brings distinct capabilities to a shared problem with the potential to create more value for the market than either could create independently.

The whole is greater than the sum of its parts.

We believe the long-term winners in private markets will be the firms that recognize where their real value lies. Processing is essential but enabling it within an isolated environment is not, by itself, a durable source of differentiation. The real opportunity lies in investment expertise, product innovation, advice and the client experience.

Shared infrastructure allows the industry to mutualize the operational functions that should be common, so firms can invest in the capabilities that make them distinctive. It does not diminish competition. It moves competition to where it creates the greatest value.

This is not altruism divorced from commercial reality. It’s the recognition that solving foundational problems collectively can create a larger, more efficient market for everyone. When firms stop rebuilding the same operational capabilities and begin connecting their respective strengths, the ecosystem becomes more valuable to every participant.

The DTCC and iCapital collaboration is one step toward that model, not its endpoint. Shared infrastructure only reaches its full potential when the industry helps shape it, connects to it and builds upon it.

Shared infrastructure allows the industry to mutualize the operational functions that should be common, so firms can invest in the capabilities that make them distinctive.

Private markets don’t need another solution in isolation. They need a model for solving problems together – that’s one we know well. Our announcement with iCapital reaffirms that the same principles DTCC was founded on with partners across financial services in the 1970s are how we can solve this problem and deliver for everyone.