How can pension funds discern accurate mark-to-market value in private equity and other private market assets? It’s a long-standing problem that Ashby Monk, executive director at the Stanford Research Initiative on Long-Term Investing, says he has struggled with for years.
In software company Shelton AI, there’s one solution, according to co-founders Monk and Harrison Shaw.
Founded in 2021, Shelton AI compiles decades of unlisted asset investments data, in all its messy unstructured formats, including Word documents, email, PDFs and PowerPoints, Shaw said.
“We can automatically track everything, including NAVs, cost basis, fair value, revenues, EBITDA and margins,” said Shaw, a Los Angeles native who lists Monk as an investor and a mentor.
The youngest MBA ever admitted to University of California Berkeley's Haas School of Business at age 20, Shaw graduated from UC Berkeley in just two years.
Pension funds have been signing on to use Shelton AI, including at least one of Canada’s “Maple 8” pension funds, Australia’s superannuation funds, Gulf sovereign wealth fund Abu Dhabi Investment Authority and the $23.2 billion Arizona Public Safety Personnel Retirement System, Phoenix.
The demand for private markets AI software is “increasingly driven by regulation,” said Monk.
“There’s pressure coming out of Australia, for example, to ensure near real-time NAVs. Regulators want the superannuation industry to provide better valuations, so members moving from one plan to another get a fair price.”
Shelton AI began working with pensions and other asset owners. But private equity funds and other asset managers have started to seek help from Shelton as well.
“The managers coming to Shelton say they want to make sure they are setting valuations correctly, as well as charging fees and costs appropriately.” Monk said. "These top managers are not trying to play games with their LPs; they simply prefer to avoid mistakes on these issues, and the associated hits to reputation."
With the explosion in private credit, private equity, infrastructure and real assets investing, the demand for transparent pricing is increasing.
Competitor AI companies, like BlackRock's Aladdin, Moody's and Fitch Ratings agencies are circling private markets. MSCI and Moody’s in April said they are launching a platform to provide risk assessments on private credit loans.
But no one has really tried to be the leader of transparency in private markets for pension funds, said Monk.
“My original mission in partnering with Harrison Shaw on Shelton AI was to demonstrate that startups can… work on building audacious solutions to the most intractable technical problems facing pension and sovereign funds. Until Harrison, I struggled to imagine a new generation of unicorn style startup founders taking on the pension industry. Harrison is doing it. And maybe more will try now that he's clearly succeeding."
