More than three quarters (80 percent) of LPs believe their relationship with GPs has changed in the past 12 months, according to an annual Duff & Phelps LP survey, which revealed transparency as an increasingly important issue for private equity investors.
As part of this changing relationship, nearly half (48 percent) of LP respondents have had more difficult conversations regarding fund performance. LPs are also digging deeper into their GPs’ business: 91 percent of LPs said they have been more vocal about investment strategies.
“It’s because of the market situation that we need to keep a regular check on the GPs’ performance and their investment strategies,” said one Dutch pension fund manager, in the survey.
Perhaps surprisingly, transparency was ranked by most LPs as their top priority when committing capital, edging out investment strategy, track record and performance, according to the survey.
Valuations in particular were cited as an area in need of more transparency by LPs. And although more than half (54 percent) of LPs said they are generally happy with how GPs communicate their performance data, firms still have their work cut out for them: nearly two thirds (63 percent) of LPs noted the timeliness of valuation reporting as a common problem.
It’s because of the market situation that we need to keep a regular check on the GPs’ performance and their investment strategies
“Valuations information is crucial for deciding on exiting the investment, but often private equity funds provide inconsistent information and do not share it in a timely manner. This affects our strategy and sometimes it causes us to miss our commitments,” said a New York-based pension fund manager in the survey.
The survey’s results come from interviews with 100 LPs. Fifty percent of respondents were based in the US and Canada, with the remainder from countries across Europe.