Last week, we were in Berlin to attend the world's largest private equity and venture capital conference, SuperReturn International.
Our team joined 3000 others to share insights on the key game changers for the private equity market today, to discuss the latest opportunities and examine the challenges that lie ahead for this thriving market in 2020. Here's what we found out...
- Public market returns match private equity returns for first time ever
Bain & Company released their annual Global Private Equity report at the event where their study revealed that for the first time ever, private equity returns have fallen behind public over the past 10 years. However, it's not bad news for the private equity industry. The asset class has shown strong resilience in a time of growing macroeconomic and political uncertainty. It continues to make and sell investments, raise capital and generate returns. According to Bain, the private equity investment market has had it's strongest six-year stretch in the industry's history with $3.2trillion in disclosed buyout deal value. Interestingly, due to heightened competition and challenges, GPs are increasingly looking towards public market investments with public-to-private deals hitting their highest level since 2007.
- Integrating ESG into private equity
Whilst environmental, social and governance (ESG) investing has been around for years, it's becoming more prevalent for private equity firms to incorporate ESG in their investment strategies as it's increasingly required by investors as a 'must-have' for GPs. There are a number of drivers increasing social responsibility requirements among the investment community including pressure from investors, the focus on bringing positive impact to companies and regulation.
But whilst ESG is moving to the forefront of the industry in providing value to companies, there are challenges that still remain. Primarily, reporting. With the lack of standardization in ESG reporting to investors, means GPs have more work on their plate making ESG reporting a burdensome task rather than a value-add activity. In addition, there's a lack of skills and resources in the industry who are qualified and knowledgeable in ESG to be able to implement an effective strategy.
The answer? Technology. Whilst technology seems to be the answer to most of our prayers, it's becoming more and more essential to have the right digital kit in place to optimise ESG reporting and make the whole process more efficient. We then might see ESG shift whereby more and more global firms will be encouraged and incentivised to integrate solid ESG strategies.
- Digital transformation: a key requirement for private equity firms
It was apparent at the event that technology remains a key area of discussion with nearly all speakers talking about the need for enhanced technology remaining integral to private markets and their investments. Whilst many firms recognise the need for tech and the role that digitialisation can play in improving operational efficiency and streamlining LP reporting, many aren't acting fast enough. In one talk, it was noted that GPs are not spending enough on long term technology infrastructure and only 25% are spending above $1million and only 5% spending above $5million.
This is where outsourcing partners have a role to play as many have already made a significant investment in their technology infrastructure. The ability to provide back office technology that funds can use in-house as part of the servicing model means firms can benefit from more robust operations and enhanced investor reporting.
As we head into an era of digital transformation, the private equity industry is likely to see more regulation coming into place, increasing data and transparency demands and more sustainable investing. Technology will continue to play a key part in the growth of this asset class as there'll need to be a move towards AI, machine learning and increased automation.
At Intertrust, we're your strategic partner when it comes to tailored, end-to-end solutions to tackle the complex world of fund structuring, operational efficiency, governance and global regulation. We have the ability to set-up and manage entities at the global SPV level, through to administration and investor services at the fund level.