Valuations of portfolio companies are a top concern among 60% of private equity investors and their consultants this year. Dry powder was the No. 2 top concern, with 40% of this group citing it as among their top concerns for the industry this year. Both results are up substantially from 2017, when 48% of investors and consultants cited valuations and 26% cited dry powder as their top concerns.
These and other important findings on private markets trends are uncovered in the 2018 eVestment Private Markets Due Diligence Survey, released today. For the new report, eVestment surveyed investors and consultants around the world. eVestment has conducted this survey for the past three years.
For the first time, eVestment also surveyed private markets fund managers to gain their insights on the market. One interesting contrast to the investor and consultant findings: while valuations and dry powder also topped the list of fund managers’ concerns, the proportion of respondents that noted them as such was lower than investors and consultants, at only 38% and 19% respectively. This perhaps illustrates fund managers’ confidence in their ability to maximize returns through hands-on operational improvements, rather than relying on market timing.
Other interesting points from this year’s survey include:
- Among investors and consultants, 21% expect to increase their allocations to private equity this year, while only 16% expect to decrease their allocations to private equity. Firms in the private equity real estate space might face headwinds in 2018 as only 7% of investor and consultant respondents expect to increase allocations to this strategy while 14% expect to decrease allocations.
- Of the fund managers surveyed, nearly two-thirds reported the use of credit facilities with over a third of this group having facilities in place of between two and five years. Despite credit facilities gaining negative media coverage, investor and consultant respondents were in fact largely neutral on the use of them by managers: only 23% view them negatively and coincidentally the same percentage viewed them positively.
- Investors and consultants still face challenges in being able to compare the performance of one fund manager to another, as cited by 61% of respondents. They are seeking to overcome this by leveraging deeper data: 78% of fund managers reported that investors and consultants were requesting more granular data this year compared to previous years and 74% of investors and consultants stated that they always or often recalculate fund performance numbers.
- Investors and consultants spend significant time performing due diligence on fund managers – 21 days for a manager with which they already have a relationship and 40 days for a new manager. This highlights how a consistent way to share and assess data, such as eVestment’s TopQ solution, could ease the due diligence process for everyone in the industry.
- ESG considerations were noted as extremely or very important by 46% of investor and consultant survey respondents in the Europe, Middle East and Africa (EMEA) region, while only 18% of investor and consultant respondents in the Americas rated ESG as extremely or very important.
“As private markets firms and funds become larger and more influential and institutional investors continue to increase their exposure to this asset class, this survey provides a unique perspective on the challenges and opportunities investors, consultants and fund managers face,” said Graeme Faulds, eVestment’s Director of Product – Private Markets. “The rigor institutional investors are exerting in the due diligence process in the private markets space, even during a time of unprecedented demand, is undeniable and it’s interesting to see how investors, consultants and managers are adapting and the tools and solutions they are adopting as this evolution continues.”
To download a full copy of the report, please click here.