Sun, Mar 1, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Private Equity Strategies

Let's Be Clear - Transparency is Still Lacking in Alternative Investments

Wednesday, June 11, 2014

Even as investors push more capital into alternative investments, and regulation seeks to improve transparency, work remains according to a new survey from Intralinks and Opalesque. The report, entitled "Let's Be Clear: A Common View on Transparency," shows that only half of investors who responded think they are getting enough transparency from their managers.

Hedge fund industry assets are now hovering just under the $3tn mark, a big comeback from post-crisis lows. Private Equity also raised some $98bn in aggregate in the first quarter, highlighting a return to the asset class. Taken together, data shows that investors aren't shying away from the industry even if operational reporting isn't where it should be. Yet, hedge fund performance has been tepid lately, leaving open the question of how long investors will stick around on little information or returns.

According to data in the report, managers may want to reconsider holding back information. 89% of investors in the survey said they wouldn't invest in new funds due to transparency concerns, and would instead stick with their existing allocations. Given the already challenging asset raising environment for funds, this response should catch the attention of managers looking for a competitive edge.

"How fund managers communicate with investors hasn't changed much in the past 10 years. Only more recently has the industry started to realize that a good investor communications program can actually be a competitive advantage," said Andre Boreas, Director of Alternative Investments, Intralinks.

Despite how slowly managers are adapting to transparency demands, there do seem to be some positive changes on the horizon. 85% of investor respondents said they would prefer to get fund disclosures in electronic (and presumably machine readable) formats to facilitate in-house analysis. As Opalesque has previously reported, technology spend is going way up inside funds as they work to meet regulatory and investor compliance demands.

In addition to format, content of disclosures is equally important. 96% of investor respondents said that beyond performance, they want to see both leverage and exposure metrics. Leverage and exposure were cited as the two items following right behind performance for how hedge funds are evaluated. On the private equity side, 93% said that valuations and financials were most important behind performance. Funds willing to highlight these metrics in a format that investors can slice and dice on their own, will see a distinct advantage in asset raising.

The other theme in the survey was consistency of those disclosures. Respondents note that if they ask for a specific piece of information, they usually get it but they do have to ask which raises questions as to whether all investors in a given fund are on a level playing field in terms of information. As alternative investments mature and attract institutional dollars, it is likely that those investors are getting more from a fund than a family office.

An alphabet soup of standards groups including ILPA, OPERA, and HFSB have all tried to set up disclosure standards for hedge funds and private equity with mixed success. Data in the report shows investors taking matters into their own hands with 25% requiring daily or weekly reports from managers, but without clear standards inequality of information will rule the day.

"There is a fundamental shift underway in what information the investor community now requires from their fund managers," Boreas says. "GPs that realize this and make the meaningful investment in their operations to support this shift will ultimately win in the end."

 
This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies
Private Equity Strategies


Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

    Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

  2. Adamas Asset Management and Ping An Insurance to co-manage $500m debt fund[more]

    Komfie Manalo, Opalesque Asia: Hong Kong-based Adamas Asset Management and Ping An Insurance Group, one of China’s largest financial institutions, have finalized a memorandum of und

  3. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

    Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

  4. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

    Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his

  5. Dymon Asia's $3bn macro hedge fund lost 10.45% in January[more]

    From Reuters.com: Dymon Asia's $3.1 billion macro hedge fund lost 10.45 percent in January, performance data seen by Reuters showed, a month where many peers lost heavily after a surprise rise in the Swiss franc. Singapore-based Dymon, set up by Danny Yong, a former founding partner and chie