There was deep mutual distrust and rifts in expectations and communication between asset owners and private equity managers, according to a survey.
The survey of more than 200 limited partners (LP) and general partners (GP)—conducted by fund servicer IAG and fund administrator Thompson Taraz—found 100% of LPs reviewed a fund due to poor communications.
Nearly two-thirds of asset owners said they met with a manager even though they had no intention of investing in its fund. Some 27% also said they had requested information from GPs only to measure to other funds.
Lying was also prevalent in the relationship between asset owners and private equity managers: 16% of LPs admitted they had lied to a manager about why they didn’t invest in their fund.
Private equity managers were largely aware of such deception, according to the survey. Nine out of 10 GPs thought an investor had met them only to compare their funds and some 84% believed asset owners had lied about why they won’t invest.
“When it comes to communication, there are eye-opening differences between LP expectations, the reality of what they experience, and GP perceptions of how well they are doing,” Raymond Page, IAG’s director, said. “The undertone of mistrust that the report has highlighted cannot be beneficial to the manager/investor relationship.”
The difference in opinion was especially apparent in discussing fund performance reports. While a large majority—90%—of managers believed their reports were complete, only half of asset owners surveyed said they get all the information they need from these reports.
Almost two-thirds of GPs said they had received requests from LPs to reformat reports or provide extra portfolio information.
Investors also said venture capital fund managers’ reports were the worst in quality while established private equity managers were the best. UK private equity managers were ranked higher than their North American counterparts.
“With fierce competition for investors, fund managers must spend quality time with their LPs early on in the relationship to discuss and agree communication needs and preferred fund report formats,” Page said.
Related Content: The Pension Wars, Private Equity Deals Collapsing Over Fee Disagreements