SEI Survey: Investors Demand Greater Transparency

Published December 7th, 2009 - 01:12 GMT

Institutions Remain Committed to Private Equity for Return Potential,
Diversification

 

    Institutional investors remain committed to private equity investing,
but
seek greater portfolio transparency and higher quality reporting from
managers amid growing liquidity and performance concerns, according to a
survey report released today by SEI (Nasdaq: SEIC). In a report on the
survey's findings, SEI asserts that private equity managers who standardise
and institutionalise transparency practices will be most likely to retain
and
capture assets because they will create efficiencies while delivering a more
consistent and enhanced client experience.

 

    The survey, which was completed by senior investment professionals at 51
organisations ranging in size from less than euro 330 million (US $500
million) to more than euro 13 billion (US $20 billion) in assets, revealed
that more than 90 percent of institutions polled planned to either increase
or maintain their allocations to private equity in the coming year. The
majority of those polled still see private equity as a viable source for
potential return (73 percent) or as source for diversification (69 percent)
despite the fact that private equity activity has remained sluggish this
year, while the public markets have rallied sharply. Most participating
organisations were foundations, endowments, or public pension funds.

 

    "Private equity fundraising has stalled for the past 18 months, but the
good news for managers is that institutions remain firmly committed to the
asset class," said Phil Masterson, Managing Director for SEI's Investment
Manager Services division. "With that said, investors do have concerns --
and
these concerns aren't transitory, but rather represent an evolution in
investor expectations. Investors are seeking transparency of holdings,
valuation methodology, and investment processes, as well as more
comprehensive, timely, and independent reporting. While managers may not
need
to provide the same level of transparency to all clients, they will need to
instill best practices across their business in order to attract and retain
institutional assets."

 

    Not surprisingly, in the wake of the recent global financial crisis,
liquidity risk was cited as a primary concern by the majority of investors
(62 percent) followed by poor performance, both absolute and relative (58
percent).

 

    When rating the criteria most important in selecting a private equity
manager, the top three responses were quality of management team, clarity of
investment philosophy, and sector expertise. The next three most important
selection criteria were compliance infrastructure, portfolio transparency,
and quality of reporting and communications -- demonstrating the increased
emphasis institutions are placing on transparency. Underscoring the point is
the fact that those criteria rated significantly higher in importance than
investment performance and fees. The survey also points to the changing
expectations of institutional investors in the wake of the recent financial
crisis and increased regulatory scrutiny.

 

    The report is published by the SEI Knowledge Partnership, which provides
ongoing business intelligence to SEI's investment manager clients. To
request
a full copy of the report, please visit www.seic.com/PEResearch.


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