Leading fund managers have called for small consultants to put more effort into researching investment into private equity.
Small investment consultants are finding it challenging to measure accurately the competence of the growing number of private equity managers.
While the UK’s big three - Watson Wyatt, William M Mercer and Bacon & Woodrow – are seen to cover the private equity sector well, the smaller consultancies are lagging behind.
State Street Global Advisors chief investment officer Alan Brown believes there is more to be done.
He said: “Consultants do not have unlimited resources and are stretched to cover the waterfront of all the providers of private equity to be able to provide a turn key solution to their clients who are quite clearly not in a position to do the original research and the ongoing monitoring.”
He added: “I think this is why you are seeing a significant number of fund of funds attempting to fill that gap.”
Brown believes the problem will be overcome by time as more and more larger funds share the leadership position in this area, smaller funds and their consultants will follow.
Chief executive of HgCapital, an independent private equity manager, Ian Armitage, also believes that smaller consultancies are not researching private equity to the same extent as its larger counterparts.
HgCapital said in order to research this alternative asset class, consultants need to focus on four main areas:
• The investment strategy of the management firm• The processes adopted to run the money• The performance of the asset class• The people who produce the performance and execute the strategy
Armitage said: “This takes a lot of time and they [smaller consultants] have probably got other priorities which are more suited to their situation.”
However, Gissings investment director Brendan Reville believes it is not a huge surprise that the larger consultants spend more time researching the industry as only large schemes invest in this sector because “to make any difference you need to put a significant amount of money into it”.
He added: “For my client base here, it would be a waste of my time. The small-to-medium client base that we service isn’t going to invest in that asset class and you have to be driven by what the demands of the clients are.”
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