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PE firms burdened by wider demand for more information: Vistra

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The private equity (PE) industry is under pressure.

A recent survey of 150 senior PE professionals revealed that 71% felt that the increasing demand – by investors, regulators, internal management and other stakeholders – for more information had the strongest impact on the global PE industry. Other highly rated issues were transparency (noted by 59% of respondents) and regulation (63%).

Conducted by fund administrator Vistra, and titled Vistra Private Equity: Where Challenges Meet Opportunities, the survey identifies predominant industry trends by investigating the current state of the PE industry from the perspective of LPs, GPs and legal intermediaries. Among private clients in Asia, demand for PE has grown in recent years.

Information flows

Not only does the volume of information required appear to be growing, it is also becoming more diverse – with investors wanting data streams to develop their own reports, and issues around portfolio transparency creating demands for better-quality information.

These demands for information have translated into cost pressure for some smaller PE firms, also driving the industry to seek digital or third-party solutions for producing and distributing these requested data points. Such requests can be “the geography, industry and underlying financial data of the portfolio companies” so that the investors can estimate whether the fund is fairly valued.

For ESG PE funds, investors may demand metrics that demonstrate the social impact created by the fund, e.g. how many acres a lending company is greening in their business process or whether they ensure that female entrepreneurs have access to financial support.

“For example, a PE fund received over 500 extra data requests from 260 investors. Depending on the size of the LPs and the style of the LPs, as well as the size of the investment by these investors, most of the disclosure requests are entertained to the extent that there is such a data or if there is an estimate of that relevant data point,” Caroline Baker, managing director, Asia, alternative investments at Vistra told Asian Private Banker.


In order to reduce the inefficiency of reacting on each data requests, Baker mentioned that there is an increased usage of the Institutional Limited Partners Association (ILPA) reporting template on fund information disclosure, which is so far the only set of guiding standards in the industry.

She believes that by completing the ILPA reporting template, most questions raised by both clients and regulators would be answered. She foresees this template will soon be adopted in Asia since the format includes a lot of information that investors have asked for and because standardised reporting could effectively reduce costs.

Despite an intention to upheld the ILPA standards, Vistra’s research report found that currently only 32% of surveyed GPs globally and 21% in Asia are fully compliant with such standards, with technology (62%) being cited as the key factor holding back GPs from achieving compliance, followed by experience/skill (62%) and cost to outsource (56%).

“There are a number of factors at play,” the report reads. “Investors want transparency so that they understand the minutiae of their investments. The additional work associated with meeting transparency requirements comes with costs, however, and GPs are typically cost-conscious. This creates a natural push-pull between GPs and LPs.”

Considering the fact that compliance with ILPA principles is still largely a work in progress, it is important to note that transactions and funds have become more complex than a decade ago. What may have been transparent a decade ago may no longer be transparent now. As the industry evolves, what people need to be transparent about evolves and it is difficult to move in unison with that. Vistra reminds PE firms to work on better transparency as clients may take the level of disclosure as a consideration in choosing their investments.


Besides the demand for greater information flows (cited by 71% of respondents), and increasing transparency (59%), another leading concerns in PE was increasing regulation, with 63% believing that the level of regulation will become more difficult and complex in the next three years.

Since the financial crisis, the challenges posed by regulatory and transparency requirements have increased across the PE industry. From Dodd-Frank and the Alternative Investment Fund Managers Directive (AIFMD) to the impact of the Foreign Account Tax Compliance Act (FATCA) and anti-money laundering regulations.

In addition, PE firms are under pressure from local supervisory authorities to comply with more nuanced regulations. Since 2013, the Monetary Authority of Singapore (MAS) has required close-ended funds to submit an annual declaration and provide an information memorandum that complies with specific disclosure requirements. Hong Kong and the Cayman Islands are currently planning to launch licensing schemes to increase their supervision of the PE industry.

“These licensing regime put the onus on the principle to answer to the regulators and these requirements would definitely increase the robustness of the governance within PE firms,” Baker told Asian Private Banker. “The professionalism of PE funds is increasing. People have to think a lot harder for internal controls.”

Besides internal controls, counterparty risk too was an area of focus for regulators, said Baker, in which they examined the governance of firms with which the PE funds work.

“There are two-level of counterparties — the level where you share the data with, like lawyers, accountants and banks in domestic jurisdictions and other services providers. These are subjected to more stringent regulatory standards,” she said.

“Another level would be the distressed companies that buyout funds invest in, for example, if you’re not investing wholly in distressed companies, you might be working with a counterparty that you might not usually regard as having sounding governance, but in this level, the counterparties are subjected to less stringent requirements as there will be less information sharing between the PE firm and the other shareholder of the distressed company.”

Cause for optimism

Considering the current geopolitical uncertainty, conflicts and trade wars, it is little surprising that respondents to the survey specifically noted “tariffs and trade uncertainty”, “the volatile nature of stock markets” and “the impact of globalisation” as key challenges facing the PE industry.

Despite the understandable concerns shown by the research, asserted Onno Bouwmeister, global sector lead, PE, at Vistra, “the PE industry showed clear optimism in a number of areas”.

First, there is the shift towards larger fund sizes (selected by 38% of respondents): larger funds are becoming more prevalent in Asia and the US. In the US, in particular, they have become a strong driver in real estate and infrastructure. Then, there is the increasing number of debt options (36%).

Also, there is a growing trend of co-investment (cited by an average of 31% of respondents): there has been an increase in co-investment and single managed accounts, which indicates that “LPs have a greater say in the way that they are investing and in some of the key terms around their investments”. In Asia, for nearly every large deal, there has been a co-investment element.

“Not only was co-investment flagged as a key trend in the market, along with the increasing number of debt options, 55% of respondents also felt that opportunities were being created more broadly,” Bouwmeister concluded. “The reality is that solutions will have to be found to address the many issues that exist, and this will rely on the will of all market participants. But drivers such as ESG and the move to transparency will keep the sector moving forward.”