Thu, Nov 26, 2015
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. Other Voices: Hedge fund marketing and the selling cycle[more]

    By Bruce Frumerman. How long is the selling cycle now? That’s a question my financial communications and sales marketing consulting firm has been asked on a regular basis by hedge fund firm owners and sales people, ever since we opened the doors to our firm in 1987 pre-crash. Wa

  2. Investing - BlackRock targets ETF investors with flexible currency hedging, Nelson Peltz bets on General Electric Company and Mondelez International, Apple plummets to 4th place among hedge holdings, from No. 1, Top Q3 equity purchases and sales of top 50 hedge funds[more]

    BlackRock targets ETF investors with flexible currency hedging From BlackRock Inc., the world’s largest asset manager, is changing course on exchange-traded funds that protect against currency volatility. After stressing the easy switch between hedged and unhedged ET

  3. BlackRock is shutting down its Global Ascent macro fund[more]

    Komfie Manalo, Opalesque Asia: BlackRock, the world’s largest asset manager, has announced plans to shut down a macro fund, Global Ascent Fund, because of "headwinds facing the industry". The hedge fund, which makes bets on stock, bond and currency markets, will return money to investors. Ac

  4. Opalesque Roundtable: Seeding deal terms can be onerous for hedge funds[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: Executives from fund of funds firms, family offices, a placement agent, a private equity firm, and an accounting firm gathered in Connecticut last month for the

  5. Opalesque Roundtable: Family offices flock to co-investment[more]

    Bailey McCann, Opalesque New York: Co-investments have been a hot topic for pension funds in recent years, as they try to move away from high fees and improve transparency. But now, family offices are more readily getting into the mix and establishing in-house deal teams, according to the delega