Survey: Institutional Investors Flock to Private Equity, Demand More Transparency

(September 1, 2011) — A new report suggests that while institutional investors, fund managers, and consultants are increasing their allocations to private equity or recommend increases to their clients over the next 12 months, they are calling for heightened transparency, reporting, and risk management from providers.

The survey from SEI and Greenwich Associates, titled “The Logic of Fund Flows,” found that 26% of investors plan to increase their private equity mandates in the next year. However, investors and consultants differed on their investment objectives regarding private equity. Approximately two-thirds of investors (68%) pointed to return potential as their primary objective as opposed to 10% of consultants. Fifty percent of consultants, meanwhile, said diversification was their primary investment objective as opposed to only 18% of investors.

“As investors are looking to achieve higher returns in an increasingly challenging return environment, private equity is coming back, but standards are higher across the board,” said Greenwich Associates Managing Director Rodger Smith.

SEI’s Phil Masterson added: “This survey confirms what we’re hearing from our clients–investors are demanding more from managers across asset classes.”

Commenting on the survey findings suggesting that the criteria for evaluating managers have become more demanding, SEI’s Ross Ellis said: “Managers have reason to be encouraged by investors’ renewed enthusiasm for private equity; however, in exchange, more is expected of them. Managers are facing greater performance pressure, greater fee pressure, and greater transparency expectations.”

Meanwhile, the survey showed the secondary market for private equity was “thriving as investors are buying or selling to meet liquidity demands or pick up deals at deeply discounted prices.”

The survey of 411 institutional investors, consultants and fund managers, conducted in April and May, is the first of a three-part series of survey reports on private equity. The following report is scheduled to be released in early October, followed by another one in early November.