As private equity becomes more popular, investors are demanding many of the same things from their alternative investments that they have come to expect from their traditional funds, according to research by State Street.
More than half of the private equity managers interviewed in Europe (56 per cent) reported investor demand for greater transparency into risk and fund performance as a top driver of change, compared to 49 per cent globally and 43 per cent in North America.
Some 31 per cent of private equity managers in Europe cited investor demand for liquidity at the fund level as the biggest driver of change. This is in line with North American (29 per cent) and global fund managers (30 per cent).
The research also points to other key macro changes in the industry:
Fundraising ranks as the most urgent challenge for European and North American-based private equity managers over the next five years, cited by 84 per cent and 90 per cent, respectively. This is closely followed by generating performance, which is cited by 56 per cent and 74 per cent, respectively.
Some 19 per cent of European-based private equity managers have expanded into new regions since 2008, nearly double the percentage of European hedge fund managers (10 per cent); a further 19 per cent of European private equity managers plan to expand into new regions over the next five years. In comparison, 14 per cent and five per cent of North American fund managers feel the same, respectively.
A total of 59 per cent of private equity managers globally say that industry appetite for hybrid alternative fund structures that blend features of traditional hedge fund and private equity vehicles will increase over the next five years
M&A activity is set to increase with 16 per cent of European-based private equity managers planning to acquire another business in the next five years; this compares to three per cent who have already done so in the past five years. However, North American fund managers feel differently, with just two per cent planning to acquire another business in the next five years.
To succeed among increasingly fierce competition for investor capital, European-based private equity managers are refining their products and investment strategies with more than a third (34 per cent) planning to offer new investment strategies over the next five years. This compares to just 24 per cent for North American fund managers.
Steve Langton, vice president, alternative investment solutions at State Street in EMEA, says: “The investor spotlight is very much on private equity fund managers to generate performance whilst being completely transparent. However, fundraising continues to be a major concern for private equity managers. This study highlights how the private equity industry is adapting to achieve this through developing new investment strategies, increasing accessibility and expanding regionally.
“Despite the challenges, private equity managers are rightfully optimistic with strong signs of growth and continued investor demand.”
