Twenty-six percent of institutional investors, fund managers and consultants plan to increase their private equity allocations or recommend increases to their clients over the next 12 months, but they are calling for greater transparency in the asset class, according to a global survey by SEI and Greenwich Associates.
Respondents to the survey, in a report called “The Logic of Fund Flows,” point to the traditional top three factors considered when selecting a private equity manager — quality of the management team, clarity of investment philosophy and investment performance. But transparency, fees and quality of reporting ranked as the next three most popular reasons, according to the survey.
Jim Cass, vice president and managing director of SEI Investment Manager Services, said in a telephone interview that many institutional investors are getting more timely and detailed reports from other alternative investments than from private equity. “Many of the clients want more frequent and detailed reporting on the (private equity) positions,” he said.
Mr. Cass said he believes that managers are more willing to consider private equity investments “because it allows them to deploy capital over a period of time so they can harvest returns at a time that is most advantageous for the investor.”
“When a manager doesn't have to worry about a redemption cycle that's more frequent, they don't have to hold as much residual cash on the sidelines and they can deploy that capital to generate better returns,” Mr. Cass said.
The survey also notes that 68% of institutional investors that plan to increase their private allocations are doing it to increase returns.
Fifty percent of consultants surveyed said diversification was their reason for advising clients to invest in private equity.
The survey of 411 institutional investors, consultants and fund managers, conducted in April and May, is the first of a three-part series of survey reports on private equity. The next report is scheduled to be released in early October, followed by one in early November.