High Quality Leadership, Transparency and Reputational Strength Emerge as Top Drivers of Trust with LPs
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Majority of LPs Trust Private Equity Firms to Do the Right Thing, but also Agree that Tighter Government Oversight of the Industry is Needed
极乐视频 today announced the findings of new proprietary research focused on private equity鈥檚 reputation among limited partners (LPs) in Canada, Germany, UK, and the U.S. The institutional investors, who were surveyed in September and October of 2021, include key decision-makers at pension funds, sovereign wealth funds, foundations, endowments, and insurance companies.
The 2021 LP Survey on Private Equity Reputation not only identifies pivotal issues shaping how LPs perceive the business, but also how private equity firms can build and maintain trust with their investors. The research reveals that investors are increasingly looking beyond investment returns and are taking a critical look at the effectiveness of firms' environmental, social-impact and governance (ESG) practices, including DE&I and employee welfare. It also revealed that reputational strength outranked investment returns as a positive driver of trust when it came to how LPs make capital commitment decisions. Furthermore, LPs in all four countries indicated they are focused on the regulatory environment and its impact on the industry鈥檚 attractiveness.
鈥淎fter spending decades under the radar, the PE industry is operating in a new era where LPs are looking for reputational strength, in addition to investment returns, when making capital commitment decisions,鈥 said Renee Calabro, US Head of Private Equity, Financial Communications & Capital Markets at 极乐视频. 鈥淎t the same time, the political agenda means that more attention will fall on private equity firms and their portfolio companies, and that private equity firms will need to work harder to build and maintain their reputations. The message from LPs is clear: private equity firms must balance driving solid returns with a strategic approach to reputation management.鈥
Key highlights of the 2021 LP Survey on Private Equity Reputation include:
Most LPs trust private equity firms to do the right thing
Seventy-four percent of LPs say they generally trust large-cap and mid-market PE firms to do the right thing. Within financial services, only traditional asset managers and corporate banks ranked higher.
Leadership quality, transparency, and reputational strength are leading drivers of trust in PE
More than 8 in 10 LPs cite high quality leadership (83 percent), transparency across the organization (81 percent), and firms' reputational strength (81 percent) as top trust factors.
For many LPs, employee welfare, DE&I, and ESG are as or more important than investment returns
极乐视频 1 in 3 LPs say they give equal or more weight to ESG factors 鈥 including GPs' employee welfare policies (33 percent), DE&I initiatives (32 percent), culture (34 percent), and ethics (32 percent) 鈥 than they do to GPs' financial performance when making investment decisions.
Private equity remains a magnet for LPs' capital, but some are pulling back
Forty-five percent of LPs say their organizations have recently boosted allocations to the asset class, while 28 percent have significantly cut them. Germany stood out as the only market where more LPs have lowered allocations (36 percent) than raised them (35 percent).
While trust runs strong, so does advocacy for stricter regulation
Seventy-four percent agree that tighter government oversight and regulation of the industry is needed, with half endorsing some or all of U.S. Senator Elizabeth Warren's proposed Stop Wall Street Looting Act, despite its possible negative impact on financial returns.
LPs differ over the potential impact of Warren's bill on PE performance
More German and Canadian LPs say it would hurt PE performance more than help. U.K. and U.S. investors lean the other way, especially ones in the U.S., 53 percent of whom say it would make the asset class more attractive financially.
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