China’s private capital funds must invest to meet investors’ increasing demands for transparency, Intertrust Group says
Intertrust Group, a world leader in providing specialised administration services to clients in over 30 jurisdictions, estimates that around USD5.5 billion will need to be spent by the world’s private capital funds industry to meet these increasing demands over the next five years.
A new report, entitled The future private capital CFO: Evolving in a digital age and created in partnership with Global Custodian, shows that CFOs at private capital funds in China expect their limited partners (LPs), many of which include sovereign wealth funds and state pension funds, to require data updates with increasing frequency over the next decade. In China, eight out of 10 (80 per cent) respondents expect their investors to be looking for access to live or daily updates on portfolio performance and 71 per cent on operational service level agreements (SLAs). More than half (58 per cent) of the CFOs in China (57 per cent globally) expect a need for daily or live updates on cybersecurity and 40 per cent (51 per cent globally) on environmental, social and corporate governance (ESG).
China’s CFOs anticipate higher priority will be placed on portfolio performance and SLAs than their peers elsewhere: 64 per cent and 50 per cent of CFOs globally anticipate live or daily updates will be required for these respectively.
Although extensive investment will be required to meet these greater demands, they are also conflicting with private capital funds’ traditional leaning towards confidentiality. Intertrust Group warns that private capital funds must either meet the demands or face significant competitive disadvantages and possibly regulatory pressures.
James Donnan, Regional MD, Asia Pacific at Intertrust Group, says: “For LPs in China, ‘performance’ is more than just returns. They want updates on KPIs such as cash or debt levels, daily sales or rent arrears and SLAs, all of which show how a business is being run in a complex market. GPs must focus more than ever on giving LPs the reassurance that comes with good information. This is only good investor relations at a time when there are immense opportunities in China and they need to increasingly compete for additional capital commitments.”
The research also found that 27 per cent of Chinese CFOs (compared to 21 per cent globally) expect that meeting the demands for portfolio performance will incur the largest draw on their resources. Other factors expected to draw on resources include operations (21 per cent in China; 19 per cent globally); regulation (16 per cent in China; 17 per cent globally); cybersecurity (13 per cent in China; 16 per cent globally); investor demands (20 per cent in China; 15 per cent globally); ESG (2 per cent in China; 6 per cent globally); and diversity and inclusion (D&I) (1 per cent in China; 6 per cent globally).
In China, around one in four (24 per cent) CFOs say they will respond to the increased demands by investing in technology, 23 per cent say they will increase the size of their in-house finance teams, 22 per cent will outsource more functionality, 18 per cent will invest in distributed ledger functionality and 11 per cent will retain the existing balance between in-house and outsourcing.
Donnan adds: “Outsourcing gives GPs access to the right people and systems with economies of scale, enabling them to focus on attracting and deploying capital. They should partner though with a services provider that has many years’ experience in China and understands the complexities of both the domestic and international markets.”
