Industry Voice: Re-thinking the management of committed capital

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Industry Voice: Re-thinking the management of committed capital

Private assets1 investing is an increasing feature of institutional investor portfolios. It is no longer the preserve of ‘multi-generational' investors such as endowments, foundations and sovereign wealth funds. The reasons for the increased allocation are varied, but the primary motivation is the prospects of enhanced total return. More democratic access as smaller investors began to gain access via multi-fund providers has resulted in wider investor interest and an increase in demand. Corporate and Local Government pension funds are participating in this trend with vigour.

Investors, and especially UK pension funds, have made much progress over the last couple of decades on the governance of all aspects of managing their asset pool; does anyone remember the Myners Principles set out back in 20012? This includes steps taken to ensure the sound management of portfolio switches within or between listed asset classes - for example equities to equities or equities to fixed income. The increased scrutiny in this area has resulted in more efficient management of asset and manager transitions to ensure that transaction and market impact costs are minimised and risks, particularly out of market risk, are properly managed.

This paper asks if the allocations to private assets are enjoying the same level of sound governance and whether there is adequate attention being paid to the many frictional costs and risks of switching from generally listed legacy assets to the ultimate destination in private markets. Given that the capital commitments to private assets are contractual but are likely to being drawn down and invested over a period of years, we posit that this issue is of increasing relevance. Further we understand that the increased demand3 for private market assets is resulting in delays to the expected commitment timetables; this amplifies the challenge of the management of the ‘dry powder' of committed but yet to be deployed capital.

To be clear this paper is not about the merits of private markets investing. Private assets have a role to play for many long-term investors, the focus is more on the governance of the movement of capital from legacy asset to destination asset.




For the purpose of this paper, private assets refer to private equity, private debt and infrastructure. Property (or real estate) has been a long-standing allocation of many investor portfolios.


This post was funded by T. Rowe Price

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