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The Future of Private Equity

 The following is from the SEI research paper, “Future of Private Equity.”

Here are the key findings from our recent Future of Private Equity survey. Leveraging them could help you grow your asset management business in the years to come.

Growth Opportunities 

  • Industry assets are projected by survey participants to grow at a median annual rate of 5.8% over the next decade.
  • GPs (general partners) expect more fundraising opportunities among a wide range of institutional investors.
  • Sixty-four percent of LPs (limitel partners) plan to increase their allocation to private equity, marking a steady gain from only 26% five years ago.
  • GPs predict wealthy individuals will generate considerable demand for private equity going forward, either directly or through family offices.
  • Four out of every 10 participants plan to buy or sell secondaries over the coming year.
  • One out of every five LPs now prefers co-investments over traditional closed-end funds.
  • Private debt is becoming a cornerstone of many private equity firm’s growth strategies.

Selection Process 

  • The emphasis placed on investment performance continues to grow, with LPs and consultants more likely to view it as a “very important” factor than any other selection criteria.
  • The reputation and credentials of fund managers still play important roles in the assessment process, but they are not as paramount as they used to be.
  • There are pronounced gaps between LPs and GPs on the importance of portfolio transparency, fees and reporting as it relates to selecting fund managers.
  • Consultants are more likely than LPs to emphasize risk management infrastructure, a separation of investment and operations, and the presence of an independent administrator when evaluating fund managers.

Operating Challenges

  • Compliance is one of the most pressing operational challenges. More than eight out of 10 GPs say compliance costs are climbing faster than other operating expenses.
  • GPs are facing greater scrutiny from LPs as well as regulators. Two out of three LPs say they are increasing the level of operational due diligence they perform when hiring a new manager.
  • Data management has also proven to be a vexing challenge for many firms. One out of three LPs now expect GPs to provide for data mapping into their portfolio monitoring systems.
  • Fee pressure and transparency demands from large institutional investors are pressuring the bottom line at many funds.

Business Models

  • A specialized business model is widely viewed as more competitive than a diversified approach, but consultants are more apt than GPs to tout the virtues of a diversified model.
  • Compared to other asset managers, private equity firms continue to perform many more functions in house.
  • Outsourcing can enhance the ability of GPs to manage data, monitor complex investment strategies, handle customized portfolios and improve investor reporting.

Interested in learning more about how to capitalize on private equity trends to grow your asset management business? Our new white paper provides insights and analysis that can take it to the next level.

Download your free copy here.

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