Inside Private Markets: an interview with Ed Cotton, Troviq

In our series of interviews to gain better insights into private markets, we sat down with Ed Cotton, from Troviq Private Markets. Ed is a Managing Director of Troviq, covering institutional and family office clients across Europe and the UK.

Hi Ed, thanks for speaking with us, can you explain your new role at Troviq in a bit more detail?

Absolutely. While it’s still early days for me at Troviq, the mission is to partner with family offices and wealth managers to tailor-make, or enhance existing, private market programs. We’re here to serve as their independent buy-side partner for private markets. We guide them through the private markets universe and identify not just the best performing managers, but the right strategies to achieve their own portfolio construction aims, needs and any specificities. Implicit to this approach is taking a long-term lens and tailoring a pacing strategy that fits their own unique circumstances.  

You have worked both within private banking and on the technology side, helping shape tech for private banks, wealth managers, and family offices. In an industry that was slower to adopt technology, do you think they have caught up in terms of digital transformation – especially in the back-office areas?

Frankly, no. I think the industry incumbents will never fully ‘catch up’ with digital transformation given the plethora of innovative fintech solutions popping up. However, I think what we have witnessed in recent years is an evolution from fintechs as the drivers of financial disintermediation - i.e. as challengers to the incumbents - to a trend of reintermediation whereby these digital tools are embraced by the wealth industry. The genie is very definitely out of the bottle. Clients now demand digital solutions, forcing institutions to swiftly adapt or risk obsolescence. It's a race to keep up with client expectations or be left behind.

The democratisation of private markets is something that I’ve been speaking to others in this interview series. What is driving interest from wealth managers, high-net-worth individuals and private banks?

A big question to unpack and one I have a lot of thoughts on but let’s keep it relatively concise. Ultimately, I think their interest stems from several key factors. Firstly, the investment case for private markets as an integral component of a properly diversified and risk-return optimized portfolio, as seen in the Endowment Model. Secondly, the rapid awakening of individual investors to the opportunity set of private markets over the past decade, facilitated by the plethora of access points now available to them including D2C platforms, wealth management offerings, and direct-to-retail structures from major GPs. Added to these, with passive public market strategies overtaking their active counterparts in fundraising terms for the first time, serious concerns now arise over the dominance of a few US giants in public markets. The ‘Magnificent 7’ now account for half of the entire Nasdaq and a third of the S&P 500. This concentration poses significant downside risk in the event of a market downturn exacerbated by the self-reinforcing nature of passives allocating to such a concentrated field. Meanwhile, the total number of publicly listed US companies has fallen below 4,000 from a peak of 8,000 in the late 1990s. This underscores the importance of accessing private markets, where investors have a 50x larger pool of around 200,000 US Mid-Market companies to explore for alpha generation and long-term growth.

We’re in challenging times for PE, with fundraising plunging to a 6-year low in 2023. But there are optimistic signs of improvement, with M&A activity expected to pick up. Thoughts on better times ahead?

Certainly, it seems like we're slowly beginning to turn a corner. While the fundamental issue of the lack of meaningful distributions in recent years has led LPs to hold back on commitments, there are positive signs emerging. The IPO market is showing signs of thawing, and there's a gradual increase in sponsor-to-sponsor transactions expected. Additionally, the narrowing valuation gap between buyers and sellers indicates a market adjustment to the present reality. Overall, I'm more optimistic that 2024 will see a resurgence in activity. With this, we should witness greater willingness from LPs to allocate capital, recognising the importance of vintage diversification and consistent deployment in private market programs.

Thanks Ed. And finally, regulation – both in the US and in Europe, investor transparency is driving a lot of change. Is technology the way to comply with reporting requirements and get investors more timely information?

Undoubtedly. Technology will be pivotal for this next leg of private market development. The increasing, and frankly welcome, scrutiny and intervention of regulators on private market managers, not least on the topics of transparency on fees, valuations, and reporting, it will be imperative to adopt technology to transform legacy and manual-intervention heavy back and middle office processes. The rapid success of newer solutions such as 73Strings, and, of course, qashqade, along with the huge data lakes built up by the established players like Dynamo and eFront, show that there is huge scope and urgency for the industry to leverage technology solutions to provide investors with timely, frequent (semi-liquid funds etc.), and detailed transparent reporting. And because no interview in 2024 would be complete without throwing it in, AI will be a key facet of this next leg of private markets growth and democratisation.

Thank you Ed!