Survey: Majority of Investors Still Face Difficulties in Private Markets Due Diligence

Survey: Majority of Investors Still Face Difficulties in Private Markets Due Diligence
March 23rd, 2017

Despite a modest improvement from 2016, 60% of respondents in the just-released 2017 eVestment Private Markets Investors & Consultants Due Diligence survey stated they still find the comparative analysis of private markets managers difficult, citing a need for more data and standardization from managers to solve this issue. Only 40% of respondents agreed “it is easy to compare one fund manager’s performance numbers with another on a fair and consistent basis.”

Listen to a quick recap of the survey highlights

 

This is the second year that eVestment has conducted this survey. Participants included private markets investors, institutional investment consultants and fund of funds managers representing total assets under management/advisement of $2.2 trillion and private assets under management/advisement of $316 billion. The survey was conducted in late 2016.

“Among experienced private markets investors responding to this survey, there’s still a clear majority looking for more data and a more consistent way of evaluating fund performance,” said Graeme Faulds, eVestment’s Director of Private Equity Solutions.

Key Themes

“Trust, but verify” seemed to be an underlying theme, with 78% of respondents stating they often or always trust the performance numbers provided by fund managers. However, of this group, 35% said they will always recalculate performance for themselves to verify the data as well as identify areas for further due diligence.

Public market equivalent (PME) analysis continues to gain adoption with 81% of respondents now using it, compared to 69% last year. Interestingly, the survey highlights the sophistication of how PME is being utilized with regards to multiple methodologies and indices.

The survey also covered private markets investors’ key concerns for the year ahead. The top three themes to emerge were high valuations, the amount of dry powder in the industry and the impact these may have on future performance.

Fees

While fees did not feature highly in respondents’ concerns for 2017 or as an extremely important factor in manager selection, 85% ranked net to LP performance as extremely important factor during track record analysis, the highest out of all factors.

“Interestingly, while the structure or level of fees are not necessarily a concern for respondents, understanding the impact of them on performance is,” Faulds said. “When considered alongside the factors stated as being of utmost importance to them in due diligence, it highlights respondents’ desire to dig in to track records and better understand what is driving managers’ returns.”

Allocations

With regards to private markets allocations, respondents were expecting to increases to private debt and reductions to private real estate during the year ahead, with a relative 17.4% increase stated for private debt on average as part of their private markets portfolio. Private equity and infrastructure increases are expected to be more modest, at just under 4% to both. Private equity real estate and venture capital are anticipated to form a relatively smaller portion of private markets portfolios, with respondents expecting 6.2% and 6.7% decreases respectively.

Public pension plans continue to have the highest allocations to private markets of any investor type with an average allocation of 16%. When asked to rate the importance of aspects of the due diligence process, respondents deemed “team” to be the most important, followed by strategy and track record.

The full report provides greater detail on these topics and more, along with sharing more qualitative insights into the “why” of respondents’ answers. Request your complimentary copy of the survey report:

Subscribe

Get the latest blogs and content direct to your inbox.

Recent news and content

Get started with eVestment Private Markets