Private equity investors have lost faith in buyout shops and will refuse to back firms that fail to be transparent on their performance or do not accede to their demands on fees, a survey found.
The once-booming industry, hit by falling portfolio company sales and a reliance on leverage to boost returns, has seen its performance slide, disappointing investors and prompting them to reign back investment in new funds.
Some 50 percent of investors in Europe and Asia Pacific view the asset class less favorably than before the downturn,
“The onus is on private equity firms to be open as possible with investors — to share the full picture of what’s happening within portfolios. That’s the way to rebuild trust,” chief investment officer Jeremy Coller told Reuters.
Some 79 percent of investors will refuse to back new funds from private equity managers they previously backed because of dissatisfation with fees and other terms and conditions, while 76 percent will turn funds down due to poor transparency.
Poor performance, traditionally the key factor influencing investment decisions, remains the biggest barrier to reinvestment, according to 85 percent of investors polled.
“Investors now see many more reasons for refusing reinvestment with private equity firms” Coller said.
Close to 80 percent of Asia-Pacific investors and 60 percent of European investors are unhappy with the performance of their private equity portfolios, while 60 percent of North American investors declared themselves satisifed, the survey found.
Investors are also changing the way they manage private equity portfolios, with around half tightening their due diligence and some 40 percent strengthening their in-house teams, the survey found.