Digitizing the private markets

Today, we announced a $133M debt and equity investment in Juniper Square. We want to take this opportunity to tell you more about our company’s story: where we’ve been, where we are today, and where we’re going next.

The Nasdaq Stock Market launched in 1971, broadcasting to roughly 500 market makers that collectively traded two billion shares per year. At the time, Nasdaq desktop devices were cathode-ray terminals that simply provided the names and quotes for stocks–there was no ability to transact.1 Fast forward to today, and the Nasdaq has become the largest exchange in the world to rely solely on electronic trading, facilitating digital transactions for more than 1.2 trillion shares annually.2

From their humble beginnings, the NASDAQ and similar markets have transformed investor expectations around transparency and efficiency, and, in the process, created opportunities for greater participation. Minimizing friction and thereby reducing transaction costs has helped drive participation higher in the public markets. Since 1971, ownership of common stocks in the United States has grown from 15%3 to nearly 60%4 of the population, opening new avenues of wealth creation to generations of investors. This activity, in turn, has been one of many influences driving valuations up over time.

While the market for public equities was being digitally transformed over the past 50 years, another investment asset class was emerging. In the 1960s and 70s, private equity–the professional management of assets held in private partnerships–began to take shape. Today, the private equity industry manages $9.8 trillion in client assets under management (AUM).5 Though still small relative to the public markets, the role of private assets in modern portfolio construction is undeniable thanks to their ability to provide diversification from public markets and help manage cyclical risks.

Yet, despite the emergence of digital exchanges and the internet, the marketplace for private funds remains opaque, fragmented, and largely reserved for institutions and ultra-wealthy individuals. In short, digital transformation has not yet expanded participation in one of the most powerful vehicles for wealth generation to emerge in the last 50 years.

The private markets operate very differently than the public markets.

Most importantly in this context, listing a security on a public market requires the issuer to meet certain regulatory requirements for public reporting and disclosures, as well as to provide assurances of internal controls. This enables any investor with an internet connection to access the same information as everyone else, creating a level playing field and empowering investors to move confidently.

Within private markets, however, market participants, not regulators, dictate the nature, timing, and terms of their private disclosures. Traditionally, investment managers (also known as general partners or GPs, or the issuers in private markets) are responsible for sorting out the details of recordkeeping, communicating, and transacting with investors. But, with tens of thousands of GPs in the market, the results are truly countless methods and formats for investors to contend with.

This has impeded digital transformation, because absent a regulator enforcing a standard, thousands of market participants would have to agree upon a standard. As a result, the ownership of private equity is today underpinned by a patchwork of disconnected systems, incompatible formats, and disjointed workflows. There is no universal system of record for private equity ownership.

The situation is not too dissimilar to the 50 US states, each of which has very different and sometimes inconsistent tax codes. The solution for taxpayers’ sanity wasn’t that all states agreed upon a “standard” tax code; rather, it was that software providers like TurboTax came along and digitized the myriad different tax statutes across 50 states to create a digitally standardized experience for the taxpayer. It was a big job and took time, but the result was a material improvement in the tax-paying experience of most Americans.

This will be how the ownership of private equity gets digitized. It will require a patient effort over a sustained period of time to map the real-world complexity of private equity ownership into a universal, digital system, at global scale.

What do I mean by a universal system? First, let’s take a look at recordkeeping. GPs and their investors (also known as limited partners or LPs) need a shared understanding of their partnership data, including valuations, cash flows, capital balances and transactions. Next, consider communication. GPs and LPs require a platform that enables secure, private communication of sensitive financial information, whether it relates to offering memoranda or investor statements. Finally, GPs and LPs require technology-enabled workflows that enable transacting–ensuring that subscriptions and distributions are frictionless and secure.

It’s a huge, multi-decade problem to map the universe of private ownership into a digital domain, but that is our mission at Juniper Square, and we are tirelessly, creatively, and relentlessly pursuing that goal, fund by fund, SPV by SPV, GP by GP, and LP by LP.

Since our founding in 2014, Juniper Square has become the leading provider of partnership enablement solutions for GPs in the private funds industry. Today, we serve over 1,800 GPs across a range of alternative asset classes, including commercial real estate, venture capital, private equity, and private debt. More than 500,000 LPs use our investor portal to access their private partnership information and securely communicate with GPs.

The scale and scope of the GPs and LPs using our platform have enabled us to advance the efficiency of private markets in key areas of recordkeeping, communicating, and transacting:

• Recordkeeping: GPs use Juniper Square to manage more than 32,000 investment entities, which oversee more than $700B in investor equity and $2T in private assets. By providing investors with a shared view of their commitments and ownership, GPs can offer LPs the transparency they crave, creating trust and driving reinvestment.

• Communicating: Creating and disseminating detailed information about financial performance is foundational to productive private partnerships. Today, our platform reports financial details at the position-, fund-, and even asset-level. This enables entitled LPs to assess not only performance, but risk and exposure at the portfolio level.

• Transacting: Finally, enabling an efficient flow of funds and payments reduces costs for GPs and LPs. Since its inception, our platform has managed more than $300B in investor contributions and $200B in fund distributions.

By combining a universal view of partnership data with technology-enabled workflows and services, we have made tremendous progress toward making private partnerships more efficient. That efficiency is reflected in a lower cost of capital for GPs and reduced friction for LPs, both in terms of information access and ability to transact. Despite accomplishing a lot in nine years since launch, we believe it's still the early innings in the shift to digital for private markets.

While we take electronic trading for granted today, history shows that the transformation of financial markets takes time. In the wake of the 1987 financial crisis, the NASDAQ was the first marketplace to move to electronic trade settlement–until that point, trades were primarily settled via phone. Nearly 17 years elapsed between its launch as an electronic quoting system and its move to all-electronic trading.

We believe the private markets will follow a similar arc toward digitization, with Juniper Square as a key enabler of that change. That’s why we’re so excited to have raised $133M in our latest fundraising round. This infusion of capital allows us to accelerate our investments in platform innovations and hiring the people necessary to accelerate this shift.

For the industry to move forward, the investor experience needs to continue to move forward. That’s why this year, we are rolling out the most significant enhancement to our investor portal since launching Juniper Square. In an industry-first, we will offer an adaptive portal, able to dynamically present the appropriate level of information based on the sophistication of the GP and LP reporting relationship. This capability will enable better comprehension, information retrieval, and ultimately ease of use for LPs in private markets. In addition, we are enhancing the security and workflows that underpins our portal, making sharing of sensitive financial documents safer and easier than ever.

Since its launch, Juniper Square Administration has grown by leaps and bounds. Our unique approach to Modern Administration provides a seamless, outsourced solution that bridges the gap between the creation of financial statements and delivery through a world-class investor portal. Today we service more than 550 entities for funds ranging in size from $50M to upwards of $1B. In the past year our administration headcount grew by over 80%, and in the coming year, we will not only expand our world-class organization but also continue to digitize administration through deep integrations with banking partners.

Today, the private markets represent less than 10% of total investor equity globally.6 But vastly more underlying assets–whether buildings, startups, or companies–are held privately rather than publicly. As a result, it’s not unreasonable to ask, why can’t private markets double, or even triple in size over the next decade to represent a more significant share of investor wealth? And, while attractive returns will continue to be a key driver in private market growth, we believe digital transformation holds even greater promise for unlocking the full potential of private markets.

Juniper Square is well-positioned to help GPs and LPs drive this change. By lowering operational costs for GPs, they can focus more time and resources on new opportunities for investment in private assets. Similarly, by removing barriers to investment for LPs, we help expand participation and the flow of capital into private funds.

Over time, our relationships, technology, data, and people will allow us to play an even larger role in facilitating the flow of capital from investors to GPs, just as the NASDAQ does today. Doing so will create ever greater opportunities for wealth creation, not just for institutions and ultra-wealthy individuals but also for people like you and me. Not only that, unlocking greater investment in private assets will drive greater investment in the businesses, startups, and buildings that make our economy among the most dynamic in the world.