SEI: Private Equity in a 'Rut' Since 2008

Based on a survey of managers, asset owners, and consultants, SEI has some advice for private equity funds on staying competitive in the still shaky sector.

(September 10, 2013) – Private equity firms should look to make key strategic adjustments to survive the sector's current stagnation, according to a recent survey by SEI.

Although the overall outlook for the market remained positive, structural challenges and the oversupplied industry have stalled fund managers from raising enough capital to jump start the sector from the financial crisis, the study found.

A total of 654 organizations participated in SEI’s survey over the last four years—75% investment management firms, 16% institutional investors, and 11% consultants.

The report worked from the premise that the recovery of the PE business is hindered by scarce investment opportunities and structural challenges including pervasive economic uncertainty.

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The result? Fund managers who have been stuck with “zombie” funds, heavier regulations, and higher taxes.

Plus, the survey concluded that limited partners are becoming more aggressive and consultants more demanding.

For general partners (GPs) wishing to successfully stay in the game, SEI recommended the following: Search for untouched sources of capital; cash in on the secondary market for potential exits; be amenable to reducing management fees; leverage technology and operational partnerships to satisfy investors and improve efficiency, and; take initiative to meet new regulatory demands.

The study showed that more than 4,500 firms were competing for limited PE business, contributing to slower and fewer acquisitions, which, along with insufficient IPOs, blocked exit options from standing investments.

To escape this rut, SEI said GPs must tap into overlooked sources of capital, including family offices, foundations, and endowments.

Smaller investors were the most likely of those surveyed to predict increases their PE allocation. Just over one-third (36%) of all asset owner respondents said they planned to do so.

SEI found that 69.8% of limited partners found lower management fees the most appealing factor in committing to a certain PE fund. Furthermore, by offering greater transparency and improving investment team quality, the report suggested that GPs could improve their chances of securing valuable assets.

As managers have looked for ways to both satisfy investors and increase efficiency in the current lackluster fundraising situation, they should seek to leverage technology and operational partnerships—a strategy that could benefit LPs while aiding a GP’s outcome, SEI said.

And lastly, the report recommended that competitive GPs can better weather regulation by streamlining compliance processes, such as filing for the annual Form PF. This, in turn, could promote increased outsourcing.

The full paper can be found here.

(September 9, 2013) – The investment team roster at the Ontario Teachers’ Pension Plan will look very different by the year’s end.

The C$129.5 billion fund appointed five internal staff members to new positions today, all of which will start on October 21, 2013.

Ron Mock, currently senior vice president for fixed income and alternatives, will take over from retiring President/CEO Jim Leech on January 1, 2014. Following Mock’s appointment as president and CEO, he and CIO Neil Petroff undertook a strategic review of the staffing structure. The result, according to the fund, is a chain reaction of job changes within the investment team.

Wayne Kozun, senior vice president for public equities, will take over the fixed income and alternatives portfolios from Ron Mock.

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Kozun will be replaced by Michael Wissell, Ontario Teachers’ senior vice president in charge of tactical asset allocation and natural resources. Ziad Hindo, vice president for global opportunities and natural resources, has been promoted to Wissell’s current position.

Mock’s move to the top job opens his seat on the board of Cadillac Fairview, Ontario Teachers’ commercial real estate arm. It will be filled by Senior Vice President Jane Rowe, who will also become chair of the investment division’s credit and counterparty committee.

Rowe’s current position, listed on the Ontario Teachers’ website as senior vice president of private capital and infrastructure, will be split into two. She will retain the private capital side, while vice president Andrew Claerhout has been promoted to lead infrastructure efforts.

Petroff will continue as CIO of this revamped investment group.

“Investment innovation is our edge at Teachers’,” said Leech. “These moves are designed to bolster that competitive advantage through cross-department transfers and promotions at the senior-most levels that bring new viewpoints and perspectives to each asset class. In other words, we expect the status quo to be challenged.”

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