TRUMP? RATE RISE? NO PROBLEM, SAYS US PRIVATE EQUITY AND REAL ESTATE INDUSTRY
September 15, 2017
Augentius survey of investors and managers reveals snapshot of industry sentiment
- Political volatility having little effect on US managers’ ability to raise funds from foreign investors, and managers are sanguine about the prospect of a Fed rate rise
- Overall global sentiment is steady, though a significant minority in all regions are finding 2017 harder than anticipated
- Delaware dominates as US managers’ choice for next domicile, with Cayman falling behind
- US leads the charge on cybersecurity, with a majority of European and Asian managers still relying on PDF/email despite the increasing threat
Political instability in the US is having a negligible effect on US managers’ ability to raise funds from foreign investors, according to research from Augentius, one of the world’s largest independent private equity and real estate fund administrators. The findings come from Augentius’ 2017 summer survey, and form part of a snapshot of sentiment across the global private equity and real estate industry, based on a survey of 100+ clients, both investors and managers. The full report can be downloaded here.
The findings reveal that, despite the political turbulence in Europe and the US, the industry is showing resilience – a majority of managers in the US, Europe and Asia, as well as investors are finding 2017 to be as or easier than anticipated.
On the specific issue of portfolio investment/divestment, this picture is reflected in the US and Europe and among investors where a majority are finding it as or easier than anticipated. In Asia, however, a slim majority of managers are finding this year more difficult than expected.
Trump, Rate Rises, and the CHOICE Act
Fears regarding political instability following the shock November election result appear to be having little concrete effect on US managers’ ability to raise funds from investors, with only 16% reporting problems in this area.
US managers are similarly relaxed about the prospect of a further rate rise, with 84% saying they expect it to have negligible impact on deal flow.
Industry opinion regarding the proposed CHOICE Act – which would remove the need for PE and VC firms to register with the SEC – is sharply split along investor/GP lines. While 60% of GPs surveyed see this as a positive step, the figure is reversed for the LP community.
Ian Kelly, Group CEO of Augentius, commented: “For all the sound and fury on both sides of the Atlantic regarding the shock political developments of the last year and a half, global markets have remained relatively buoyant – and private equity and real estate is no exception. Our snapshot of sector sentiment reveals a picture of cautious optimism.
“Nonetheless despite the positives, the picture is still a mixed one – a significant minority of managers across all regions are having a more troublesome year than planned for. Going forward, much will depend on how political and macroeconomic tensions end up playing out.”
Delaware dominates as choice of domicile for US managers
The research revealed the sheer dominance of Delaware as a domicile choice, with over 70% of US managers indicating that they plan to domicile their next fund there. A mere 7% plan to domicile in the Cayman Islands, perhaps reflecting its diminished status as a domicile following the regulatory tightening of the past half-decade.
Cybersecurity and transparency
The research also provides insight into the extent to which the industry is adapting to new digital technologies, as well as how it is responding to demands from investors and regulators alike for more detailed information.
Among other factors, an ever-increasing cybersecurity risk is driving the industry away from the use of unsecured emails and PDFs towards the adoption of secure online investor portals. The research reveals this transition is very much still underway. The US is ahead of the curve, with almost half of managers now using investor portals. However, a majority in Europe and Asia continue to use older, less secure methods, with Asia in particular lagging behind.
Ian Kelly, Group CEO of Augentius, commented: “Although it’s good to see progress in this area it’s clear that the road is still only half-traveled. Secure investor portals and similar innovations are the future of the industry and will become increasingly business-critical as cyber threats escalate. The appetite is there among investors – almost half of the LPs we spoke to expect to receive information in this way, yet only 35% currently do so.
“It isn’t just about cybersecurity – investors want to be far closer to their investments than in the past. Around 35% of the LPs we asked find themselves routinely requesting additional information, and worryingly around 1 in 5 never receive it. It’s a relatively easy way for managers to get ahead of the curve and position themselves strongly in an increasingly competitive and uncertain market.”