Director, Fund Services, Hong Kong, Intertrust Group
With large sums of money tied up for long periods, the private equity data demands of sophisticated investors are changing. They also want the reassurance of third-party oversight
Investors are seeking better and more trustworthy private equity data. That’s true in Hong Kong and China, and other private equity markets around the world.
Private equity funds attract sophisticated investors who understand the nature of the asset class. They don’t expect noteworthy price movements every day or week.
But investing in close ended funds over several years brings its own challenges.
When significant sums of money are invested for long periods, investors not only need due diligence checks before they make any decisions – the subsequent governance and administration also become much more important. Investors want to know a fund is well managed.
Although there might be a secondary market for private equity investments, investors are not generally trying to “sell and liquidate” in this way. Instead, they are seeking better yields when the assets mature. And that should be under an investment manager they can rely on.
So they want private equity data that demonstrates expected performance over time and shows the fund is managed efficiently and effectively during the fund life.
Private equity data on performance, personnel and operations
Historically, investors used to focus on the numbers alone. How well is the investment doing – and is that better or worse than yesterday, last week or last month? That attitude was imported into alternative funds from more liquid markets.
But demand for private equity data – certainly in Hong Kong and China – now has a different focus. As the market has matured, it has become less about routine figures and more about transparency and governance.
To put it another way, investors need qualitative information as much as quantitative data.
Savvy institutional investors may want regular Net Asset Value (NAV) calculations, but they also want to know about factors that could affect a fund’s longer-term performance.
They don’t want to be surprised by a sudden change in how a fund is run, so they demand transparency on strategy, personnel and operations.
Governance and private equity data
Private equity’s long-term nature and increasing importance to portfolios has persuaded investors to take a more detailed interest in what goes on behind the scenes. They are heavily focused on governance.
For example, many expect to know about changes in the fund management team or any non-compliance matters. If the fund has engaged a different administrator, or the auditor has resigned, they want to know why.
When investors have large sums of money tied up for long periods, they expect ongoing reasonable due diligence.
It is certainly a turnaround from the days when investors were happy to stand back and leave fund management to fund managers.
Seeking trustworthy private equity data
Private equity investment is comparatively less regulated than other investment products, largely because of the nature of the product and the fact that investors are considered knowledgeable. They accept the inherent risks, while expecting higher returns.
In China, as elsewhere, flexibility and the expectation of a higher return has made private equity a preferred asset class, drawing in a wider investor base. Some jurisdictions are moving to introduce new rules on transparency and governance.
But at the moment, it still comes down to trust, and that is also driving new demands in private equity data.
Can investors trust that reports are accurate and complete? Can they be sure costs are fair and expenses reasonable? Investors want more data on whole fund operations.
At the start of the fund cycle, there is also a need for fair and consistent pricing and valuation, which might create a conflict of interest for managers and general partners (GPs). Investors want to know the mechanics and formula behind the figures to prevent unexpected outcomes when the investment is realised.
Oversight for private equity data
All these demands for data and information create the need for third-party oversight.
An experienced third party creates a layer of trust around private equity data, reporting and valuations. They work for the fund, not the GP. They can reassure investors about the legitimacy of payments and accuracy of performance reporting.
In an increasingly crowded market, being able to provide that level of trust has become a point of difference for fund managers.
Why Intertrust Group
- As a strategic partner, Intertrust Group offers a full-spectrum service tailored to meet all back-office needs throughout the life of a private capital fund. This is against a background of ever-increasing reporting demands.
- Our proprietary innovative technologies are combined with global knowledge and experience to deliver added-value services for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
- Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in fund administration and corporate actions, investor relations and portfolio management.
- Intertrust Group is a publicly listed company with 70 years’ experience providing world-class trust and corporate services to clients around the world.
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