LPs: PE needs stricter oversight and regulation

According to new figures, the majority (74%) of LPs believe there needs to be stricter oversight and regulation of private equity.

Of that percentage, Edelman’s 2021 Limited Partner Survey on Private Equity Reputation found 81% of US investors felt this way, along with UK LPs (74%), Canadian investors (71%) and German LPs (70%).

That said, 74% of investors said they generally trust large-cap and mid-market PE firms to do the right thing.

Trust in GPs

When considering what positively impacts their trust in PE firms they are considering committing capital to, the majority (83%) of LPs said a high quality leadership team. This was closely followed by good reputation in the market as well as transparency across all aspects of its operations (both 81%). 

Additionally, investment returns and a healthy corporate culture (79%) were cited as factors which positively impact an LPs trust in PE firms.

ESG factors

Edelman found that one in three LPs cited ESG factors as important or more so than investment returns.

Of those surveyed, 35% of LP respondents said portfolio companies being held to the same ESG/DEI standards set out by the GP, is equally if not more important to them than investment returns. This was closely followed by the firm’s corporate culture (34%), employee welfare policies (33%) as well as DEI practices and initiatives and ethical investment practices (both 32%).

“After spending decades under the radar, the PE industry is operating in a new era where LPs are looking for reputational strength, in addition to investment returns, when making capital commitment decisions,” said Renee Calabro, US head of private equity, financial communications & capital markets at Edelman. “At the same time, the political agenda means more attention will fall on private equity firms and their portfolio companies. Private equity firms will need to work harder to build and maintain their reputations. The message from LPs is clear: private equity firms must balance driving solid returns with a strategic approach to reputation management.”

Edelman’s 2021 Limited Partner Survey on Private Equity Reputation received responses from 401 LPs. By geography, 100 respondents came from Canada, Germany and the UK respectively, while 101 came from the US.

Those surveyed included banks (20%), corporate pension funds (19%), public pension funds (18%), insurance companies (12%), family offices/private trusts (11%), HNWIs (10%), foundations (5%), sovereign wealth funds (3%) and endowments (2%).