ATLANTA, July 5, 2016 /PRNewswire/ -- The concept of "trust but verify," made common through foreign policy negotiations, is a key principle for the majority of private equity limited partners (LPs) around the world, according to a new study from eVestment, a global leader in institutional investment data and analytics.
Seventy-two percent of LPs said they often trust the high-level performance numbers provided by private equity general partners (GPs), yet 75% of LPs said they always or often recalculate those manager-provided numbers as part of their due diligence process.
As one survey participant said in the study verbatim responses, recalculating those numbers is "a required process as part of both fiduciary responsibility and our own understanding." Another said, "Every once in a while, you're going to find something that doesn't quite makes sense, so it's important to go through the process."
The survey also highlighted LP's growing interest in standardized GP performance reporting and heightened due diligence requirements. Seventy-eight percent of respondents disagreed with the statement "It is easy to compare one fund manager's performance numbers with another on a fair and consistent basis." Forty-three percent of respondents said they are increasing their amount of quantitative due diligence and 61% said they are increasing their amount of qualitative due diligence.
"Private equity is attracting more interest from institutional investors and those investors have increased requirements for standardized information and due diligence," said eVestment Director of Private Equity Solutions Graeme Faulds. "With the information needs of LPs increasing, GPs who hope to win mandates need to be prepared to be transparent with their past performance."
Some other interesting findings from the survey include:
- LPs with less private equity assets under management (PE AUM) say they are more trusting of manager-reported numbers. Eighty percent of LPs with less than USD1 billion PE AUM said they often trust performance, compared to only 44% of LPs with more than USD5 billion PE AUM.
- A vast majority of LPs (93%) want private equity fund managers to create value at portfolio companies with operational improvements, while very few were interested in value creation through financial engineering or market timing (21% for both – respondents could pick more than one answer);
- For the majority of LP respondents, due diligence levels don't waiver when evaluating re-investment decisions. Almost two-thirds (60%) of LPs carry out either the same or more due diligence on a manager they are re-investing with compared to a manager that is new to them; and
- Just over two-thirds (67%) of survey respondents carry out public market equivalent (PME) analysis, and half of them plan to increase their use of PME.
To download a full copy of the report, please click here or use this link https://www.evestment.com/resources/research-reports/2016-research-reports/private-equity-lp-due-diligence-trends-2016
In 2015, eVestment expanded its product offerings into the private equity asset class through the acquisition of TopQ – a leading provider of private equity performance analytics solutions.
By offering a more efficient, accurate and consistent approach to the calculation and analysis of private equity track records, TopQ helps fund managers better understand their own performance and more easily respond to investor requests to improve their investor relations and fundraising. LPs benefit by being able to gain a more granular and transparent view of manager performance, on a truly consistent basis, to better understand the key drivers of performance for more effective due diligence and decision making.
eVestment provides a flexible suite of easy-to-use, cloud-based solutions to help the institutional investing community identify and capitalize on global investment trends, better select and monitor investment managers and more successfully enable asset managers to market their funds worldwide. eVestment's mission is to help make smart money smarter.
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