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In the latest eVestment survey of private markets limited partners and consultants, 40% of respondents agreed “it is easy to compare one fund manager’s performance numbers with another on a fair and consistent basis.” While an increase on last year’s findings (22%), it highlights there is still room for improvement: the majority (60%) disagreed and stated they still find the comparative analysis of private markets managers difficult, citing a need for more data and standardization from managers to solve this issue.
Highlighting the continued importance of people and relationships in the private markets space, 96% of participants rated “team” as extremely important to the manager due diligence process. “Strategy” and “track record,” at 79% and 77% respectively, were also ranked highly. Interestingly, despite media and governmental focus, only 38% of respondents ranked fees as extremely important. Another hot industry topic, ESG, was cited as extremely important by the smallest percentage of survey respondents at 6%.
When asked about their concerns for private markets in 2017, valuations and dry powder took precedence on respondents’ lists, with a respective 48% and 26% ranking these. Future performance and competition were noted as concerns by only 14% and 12% percent of respondents respectively, and all other concerns, including regulation, political instability, access to managers and fees were ranked by 10% or less of respondents.
While fees did not feature highly in respondents’ concerns for 2017 or as an extremely important factor in manager selection, 85% ranked net to LP performance as extremely important factor during track record analysis, the highest out of all factors.
“Among experienced private markets investors responding to this survey, there’s still a clear majority looking for more data and a more consistent way of evaluating fund performance.” Said eVestment Director of Private Equity Solutions Graeme Faulds. “Interestingly, while the structure or level of fees are not necessarily a concern for respondents, understanding the impact of them on performance is. When considered alongside the factors stated as being of utmost importance to them in due diligence, it highlights respondents’ desire to dig in to track records and better understand what is driving managers’ returns.”
Participants in the 2017 Private Markets Investor & Consultant Due Diligence survey included private markets investors, institutional investment consultants and fund of funds managers representing total assets under management/advisement of $2.2 trillion and private equity assets under management/advisement of $316 billion. The survey was conducted in late 2016.
Some other interesting points from the survey include:
- When asked about expected change in allocations in private markets in 2017 compared to 2016, private debt is expected to experience the largest relative increase in respondents’ private markets portfolios, with an average 17.4% increase stated. Private equity and infrastructure increases are expected to be more modest, at just under 4% to both. Private equity real estate and venture capital are anticipated to form a relatively smaller portion of private markets exposure, with respondents expecting 6.2% and 6.7% decreases respectively.
- Survey respondents overwhelmingly trust high-level performance numbers provided by private markets funds managers, with 4% saying they always trust those numbers and 74% saying they often trust those numbers. But while trusting, most respondents do recalculate those numbers: with 43% saying they always recalculate those numbers and a further 33% responding that they often do.
- Use of private market equivalent analysis (PME) is on the rise among survey respondents, with 81% reporting they use PME in 2017, compared to 69% who said they used it in 2016.
Please find a copy of the report attached.
