We will work with managers whose policies, processes and reporting are not at the right standard, so during the due dili- gence process we put actions in place to drive them to the level we expect. If managers do not have the ambition to get there, we will not work with them. On the private equity side, it is getting better. There are some strong managers in Europe from an ESG perspective in terms of their processes and reporting. The US is further behind. Asia is a little behind Europe, but we have met managers who are keen to drive this forward. So, it is getting better across the board.
How do you select the right private markets manager? Dobson: It depends on what you are looking for. You have to be clear on what you want from a manager, whether you are keen to focus on a sector, asset class or region. For us, once we have identified what we are looking to select a manager for, it is down to the key aspects on a quantitative and qualitative basis. Performance is one but factoring in what they have done in the past may not show what they can achieve in a different market going forward.
Their investment strategy and ESG process are also important. We also run a peer group analysis against other managers in that space comparing how they operate. Butani: Opacity shrouds the manager selection process in alter- native assets. In public markets, you could say that you are dealing with perfect information, but in private markets you are dealing with imperfect information. For instance, in the past year, more of our clients have been interested in inflation sensitivity. Inflation has different impacts on different private market assets, though investors may not be made fully aware of the inflation sensitivity of the strategy they are investing in.
The other challenge is that managers are evolving their strate- gies. Once they bought operating assets, now they are going into construction and development. So, how do you test their ability to do different things in different areas? Often, we miss the people element. That is key in this industry. How aligned is the team? What is the culture in these firms? How do they work together? Collins: In private market investments you sometimes give up a lot of control. You are trusting people with your money for five to 10 years and you get back what you get back.
Private markets are as liquid as they have ever been.
Christian Dobson, Border to Coast Pensions Partnership
18 May 2022 portfolio institutional roundtable: Private markets
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