Competition for capital in the alternative investment market04 Mar 2016
It is safe to say that the competition for capital in the real estate and private equity industry is as competitive as it has ever been. With an ever-growing list of funds on the road seeking new capital; performance opens the door, but to win capital from new investor's organisations must demonstrate why investors should allocate their capital to them.
Private equity, real estate and infrastructure can provide investors with a degree of comfort because of the inherent nature of their underlying portfolio being based on physical assets, and with investors increasing their allocation to the alternative investment industry in recent years, coupled with subjecting the manager to an ever-growing list of due diligence requirements and obligations, the pressure really is on managers to differentiate themselves in a highly competitive market place.
Investors want to know more, and in many cases, significantly more than they did in the past as to how a firm conducts its business.
From research that has been conducted by various industry players, associations and institutions; investors are now seeking a better understanding of how private equity and real estate houses monitor and value their portfolio companies, how they manage and mitigate various types of risks, how they deploy and optimise resources in line with business strategy, and how they ultimately report to investors.
Essentially, the investors of today and tomorrow are looking for alternative investment managers to display operational excellence.
To effectively compete for capital, firms will need to be more transparent
Regardless of whether managers are going at it alone or using placement agents to attract new capital; investors are demanding more information before committing capital to a new investment structure. Real estate and private equity houses will simply have to be more transparent and clearly communicate/demonstrate to the potential investor(s) how they conduct their business.
Historically, a lack of transparency and limited investor rights regarding the request for information was typically the norm; this is changing, and changing rapidly. Some managers who have successfully raised new funds in recent years have embraced investor demands for greater transparency, and as a result are now pushing more information to the investor than ever before.