MSCI's Luke Flemmer - "bringing clarity to investment decisions"
Episode
47 min
Read time
2 min
Topics
Personal Finance, Investing, Startups
AI-Generated Summary
Key Takeaways
- ✓Data Harmonization Sequence: Transparency, price formation, and liquidity emerge in that order — but only after raw data is normalized onto consistent timescales and quote conventions. Private markets remain stymied at scale until this foundational layer exists, mirroring the transformation fixed income underwent from voice trading to millisecond electronic liquidity within roughly eight years.
- ✓Durable Alpha Quantification: MSCI's repeated decomposition of private equity performance confirms several hundred basis points of alpha persists across market regimes, net of fees. Sources include managerial operational improvement, incentive alignment, financial engineering, and the illiquidity premium — meaning patient capital matched to a company's growth timeline commands a structurally justified return premium over public equivalents.
- ✓Daily Private Equity Pricing Methodology: MSCI's 85/15 public-private equity index prices the private sleeve daily by blending lagged quarterly manager marks from the Burgiss dataset with public market equivalent correlations via nowcasting econometrics. Secondary transaction prices are expected to feed back into this model as a flywheel, accelerating price discovery and compressing bid-to-close timelines on secondary deals.
- ✓PERT Index as Passive Replication Tool: MSCI's Private Equity Return Tracker replicates private equity exposure through a basket of public equities with sector and growth factor tilts, delivering roughly 200–300 basis points of alpha over broad public markets. Goldman Sachs launched an ETF on this index (ticker: GDP), though direct closed-end fund strategies still outperform PERT by approximately 150–200 basis points.
- ✓Wealth Channel Prerequisites: Scaling private markets into retirement and advisory portfolios requires three specific capabilities: liquidity stress-scenario modeling that matches client expectations to gated-redemption realities, factor decomposition enabling side-by-side risk comparison with public holdings, and standardized terminology so liquidity definitions are consistent across product types — even as acceptable liquidity horizons differ between retail and institutional investors.
What It Covers
Luke Flemmer, MSCI's Head of Private Assets, explains how standardizing and normalizing private markets data — drawing on fixed income and FX market structure evolutions — can unlock transparency, price formation, and liquidity while preserving the several-hundred-basis-point alpha that makes private markets structurally distinct from public markets.
Key Questions Answered
- •Data Harmonization Sequence: Transparency, price formation, and liquidity emerge in that order — but only after raw data is normalized onto consistent timescales and quote conventions. Private markets remain stymied at scale until this foundational layer exists, mirroring the transformation fixed income underwent from voice trading to millisecond electronic liquidity within roughly eight years.
- •Durable Alpha Quantification: MSCI's repeated decomposition of private equity performance confirms several hundred basis points of alpha persists across market regimes, net of fees. Sources include managerial operational improvement, incentive alignment, financial engineering, and the illiquidity premium — meaning patient capital matched to a company's growth timeline commands a structurally justified return premium over public equivalents.
- •Daily Private Equity Pricing Methodology: MSCI's 85/15 public-private equity index prices the private sleeve daily by blending lagged quarterly manager marks from the Burgiss dataset with public market equivalent correlations via nowcasting econometrics. Secondary transaction prices are expected to feed back into this model as a flywheel, accelerating price discovery and compressing bid-to-close timelines on secondary deals.
- •PERT Index as Passive Replication Tool: MSCI's Private Equity Return Tracker replicates private equity exposure through a basket of public equities with sector and growth factor tilts, delivering roughly 200–300 basis points of alpha over broad public markets. Goldman Sachs launched an ETF on this index (ticker: GDP), though direct closed-end fund strategies still outperform PERT by approximately 150–200 basis points.
- •Wealth Channel Prerequisites: Scaling private markets into retirement and advisory portfolios requires three specific capabilities: liquidity stress-scenario modeling that matches client expectations to gated-redemption realities, factor decomposition enabling side-by-side risk comparison with public holdings, and standardized terminology so liquidity definitions are consistent across product types — even as acceptable liquidity horizons differ between retail and institutional investors.
Notable Moment
Flemmer uses the ancient Ship of Theseus paradox to challenge the assumption that private markets should simply converge with public markets — arguing that replacing every structural plank eventually produces a different asset class entirely, destroying the illiquidity premium and duration-matching value that justify private allocations.
Episode Transcript
Data kinda wants to be free, but when it's disjoint, when it's not normalized, when it's not comparable, when it's not on the same time scale or quote convention or you name it, you can't really get the efficiency. And so it's when you start to get that harmonized data layer, and you then you can start to build transparency, you can start to build price formation, and then liquidity, and then it becomes a sort of reinforcing sort of market efficiency phenomenon. Everybody gets a piece. We're going mainstream. Everybody's gonna eat. We're going mainstream. All my family's sick. See you on mainstream. We're going mainstream. This episode of Alt goes mainstream is brought to you by Ultimus, the full service fund administrator and transfer agent powering asset managers in private and public markets. As Alts go mainstream, you need real expertise to handle complex fund structures, connect with key distribution partners, and handle sophisticated compliance, reporting, and transparency demands. That's Ultimus. High-tech, high touch solutions for over 450 clients and 2,500 funds with over 775,000,000,000 in assets under administration. Backed by an expert team of over 1,200 employees, they place client service at the core of their business, helping you navigate complexity during your fund structuring or launch, and then supporting you through every stage of growth. Whether you're already in the market or thinking about entering private wealth, you can trust their team's deep expertise in retail alternatives to help you reach your goals. Learn more at ultimusfundsolutions.com or email info@ultimusfundsolutions.com. Welcome back to the Alcos Mainstream podcast. Today's episode dives into how data and market structure are evolving private markets. We sat down in MSCI's New York office with Luke Flemmer, the head of private assets at MSCI, to discuss how standardization and normalization of data can help bring efficiency, transparency, and liquidity to private markets. Luke brings unique perspective to private markets. He was previously managing director, head of digital strategy for alternative investments at Goldman Sachs Asset Management, and was cofounder and CEO of Lab forty nine, a global solutions provider of investment and risk technology to asset managers and investment banks. When the ION Group acquired Lab forty nine, Luc became co head of ION's capital markets division, delivering software and solutions to the group's global financial services customer base. Earlier in his career, Luke worked in the fields of robotics and artificial intelligence. He's also a CFA charter holder. Luke and I had a fascinating conversation about private markets market structure and how MSCI is playing a role in driving standardization, normalization, and transparency of data in private markets. We covered parallels to market structure evolutions in equities, fixed income, FX, and derivatives, trade offs of transparency for private markets participants, where investors will still be able to find durable alpha, what standardization and normalization of data means for secondary markets, analogies to Greek mythology, how secondaries has gone from a trade to a portfolio management tool, and how index creation might …
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Books, tools, and gear mentioned in this episode
SignalCast may earn commission on purchases via these links. As an Amazon Associate, SignalCast earns from qualifying purchases.
Tools
by Burgiss
“MSCI's 85/15 public-private equity index prices the private sleeve daily by blending lagged quarterly manager marks from the Burgiss dataset with public market equivalent correlations via nowcasting econometrics.”
by MSCI
“MSCI's Private Equity Return Tracker replicates private equity exposure through a basket of public equities with sector and growth factor tilts, delivering roughly 200–300 basis points of alpha over broad public markets.”
Products
by Goldman Sachs
“Goldman Sachs launched an ETF on this index (ticker: GDP), though direct closed-end fund strategies still outperform PERT by approximately 150–200 basis points.”
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