SunGard: Private equity market to grow but face fee pressure

Calculating feesThe private equity industry offers good growth opportunities but may also be facing mounting pressure on fees, costs and the level of information available, according to an industry survey.

As low returns from traditional investments drive private equity investors – generally known as limited partners (LPs) – towards private equity and real estate, 96% of general partners (GPs) – the investment managers – are considering offering funds with more diversified investment strategies in the next two to three years and a similar number are considering raising more money.

However, both investors and the investment managers expect the fees paid to managers to fall and investors are looking to contain costs and gather more information about their investments, according to a global survey of 151 GPs and LPs conducted by SunGard in collaboration with Longitude Research.

Seventy-eight percent of GPs and LPs believe private equity fees will fall over the next two years, while 42% of GPs say investors have become more demanding in terms of the information they seek. Amongst investors, 87% want to increase their monitoring of underlying portfolio companies.

The survey also revealed some challenges around existing technology. Less than a third of LPs reported that their needs were fully met in a range of key activities, from data collection and performance reporting, to cash flow forecasting.

However, investor information portals, a relatively new technology feature for the industry, now provide interactive reporting and a third of GPs see them as a way to build their brand. A large majority of GPs and LPs believe that technology could also improve their decision making, while 57% of LPs believe it could help them provide scale without adding staff.

Jonathan Broch, vice president, product management and strategy of SunGard’s asset management business, says GPs and LPs are becoming more disciplined and transparent, through the use of systems that allow more informed investment decisions.

“When taking a step back, the beautiful thing is that so many of the challenges faced by the industry today can be solved with a thoughtful approach to how information is managed and used across the organisation as it grows,” he adds.

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