Private equity firms that demonstrate the ability to install good corporate governance are going to be increasingly popular with limited partners, according to a recent survey from Institutional Shareholder Services (ISS).
The survey, released last month, is based on interviews with 322 institutional investors, among them pension funds and investment managers located around the world.
According to the ISS, a number of clear themes emerged from the survey. Investors are increasingly seeing corporate governance ?in a new light,? viewing it as a business issue rather than merely a compliance duty. Investors expect that good corporate governance will more and more inform the way companies perform.
These views are shaped in a major way by the globalization of the economy. As companies rely on cross-border business, the need to maintain control over regulatory and accounting practices has increased.
The chief concerns for institutional investors within this topic are the quality of boards (see top chart), disclosure and reporting and alignment of executive pay.
China, in particular, was a market that survey respondents felt would loom large as a corporate governance ?hot spot.? Chinese investors feel that companies in their country lack proper oversight, and this has led to an atmosphere of distrust and stifling of the capital markets there.
Especially in the emerging markets, private equity firms have demonstrated an ability to install practices taken for granted in the Anglo-American economies. Their continued success in this regard will be watched with great admiration by investors, and no doubt rewarded in the form of capital commitments.