Tue, Oct 24, 2017
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. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad