A survey of general and limited partners conducted by SunGard and Longitude Research has found that the private equity industry has good opportunities to grow and expand its reach, but its leaders predict mounting pressure on fees, costs and the amount of information provided.
The report found that with many LPs increasing their exposure to private equity and real estate in the face of low returns from traditional investments, 96 per cent of GPs are considering offering funds with more diversified investment strategies in the next two to three years and roughly the same are considering raising more money.
Both GPs and LPs, however, expect the fees paid to GPs to fall, and LPs are looking to contain costs, while at the same time demanding more information about their investments.
Both GPs and LPs (78 per cent) believe private equity fees will fall over the next two years and 57 per cent of LPs believe technology can help them provide scale without adding staff. Some 42 per cent of GPs say LPs have become more demanding in terms of the information they seek, and 87 per cent of LPs want to increase their monitoring of underlying portfolio companies.
Investors need more information about their investments so they can better compare fund performance, improve net returns, and report more efficiently to regulators and stakeholders. However, both LPs and GPs suffer from fragmented systems and data, creating some difficulties when making informed allocation decisions.
The survey revealed some frustration with existing technology. Less than a third of LPs reported that their needs were fully met in a range of key activities, from data collection, performance reporting and cash flow forecasting.
However, investor information portals, a relatively new technology feature for the industry, now provide interactive reporting and are regarded as a way to build their brand by a third of GPs. Additionally, a large majority of GPs and LPs believe that technology could improve their decision making.
Jonathan Broch, vice president, product management and strategy of SunGard’s asset management business, says: “Increased scrutiny from a number of different angles has led GPs and LPs alike to become more disciplined by using systems that allow more informed investment decisions as well as increasing transparency when reporting to investors, regulators and other key stakeholders. When taking a step back, the beautiful thing is that so many of the challenges faced by the industry today can be solved with a thoughtful approach to how information is managed and used across the organization as it grows.”