While this may have sufficed in the less heavily regulated, less formal PE industry of old, in the modern environment it means one of two things: damaging relationships, or creating obscene amounts of unnecessary cost and work in the process of responding to ever-more complex and idiosyncratic investor demands (or worse, both). A recent survey of Augentius’ clients across the globe revealed that only half of managers were providing their investors with enough information on a routine basis, without investors having to make additional requests.
What’s concerning is that one in five investors reported that they never received the additional information they requested – which hardly inspires confidence. And what’s somewhat damaging to relationships now could be fatal during a period of lower returns and investor anxiety.
The barriers to solving the problem are far more cultural than financial or technical. Well-tested and relatively low-cost platforms now exist that can automate much of the reporting process, allowing for far more in-depth, frequent and granular information to be sent to investors. This can be tailored to exactly what investors want and need – without any corresponding increase in cost and effort for fund managers (indeed there is often a net saving given the efficiency gains).
Nonetheless, the gradual pace of change on this front may not be quick enough. Should the long summer of PE market be able to give way to a storm, the need for gold standard investor relationships will become one of survival rather than advantage. Storms have a way of separating the wheat from the chaff.
For more trends, visit the Portfolio Construction Channel