Private Equity LPs Demand Transparency on Performance, Risks

Investors want to know more about the underlying assets in private equity portfolios, according to State Street.

Private equity investors don’t just want more transparency regarding fees—they’re also demanding that the portfolios themselves be less opaque.

A State Street survey found that 70% of institutional investors were demanding increased openness from private equity managers on the performance of underlying assets in each portfolio.

Nearly half (46%) said they wanted more information on risk exposures. A third (32%) called for greater transparency over net asset values, while 23% made the same call regarding fund cash flows.

“Both asset owners and asset managers require enhanced data and analytics solutions to demonstrate increased levels of transparency of underlying assets and risk exposures,” said JR Lowry, head of State Street Global Exchange in Europe, the Middle East, and Africa.

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This demand for risk and performance data will only continue to rise, according to 83% of asset owners surveyed. Nearly half  (47%) said they believed demand would increase “significantly.”

Lack of transparency was one of the biggest obstacles for investors seeking to increase their direct exposure to private equity, according to 38% of respondents. It was second only to illiquidity as a reason not to increase allocations.

More than half (59%) still believed investments in private equity will increase over the next five years—but if transparency levels do not improve, 36% said they would decrease their exposure in response.

“Failure to provide sufficient levels of transparency increases the risk of driving asset owners away from investing in private equity,” said Lowry.

Related: Most Private Equity LPs Believe Interests Are Aligned