Intertrust Group estimates cost to global private capital funds industry to meet investor demands is US$5.5bn over the next five years
Private capital funds in China face growing demands for transparency as mainstream investors increasingly turn to the sector to chase the higher returns it offers, new research* from Intertrust N.V. (“Intertrust Group” or “Company”) [Euronext: INTER] reveals. Intertrust Group, a world leader in providing specialised administration services to clients in over 30 jurisdictions, estimates that around US$5.5 billion will need to be spent by the world’s private capital funds industry to meet these increasing demands over the next five years.
A new report, entitled The future private capital CFO: Evolving in a digital age and created in partnership with Global Custodian, shows that CFOs at private capital funds in China expect their limited partners (LPs), many of which include sovereign wealth funds and state pension funds, to require data updates with increasing frequency over the next decade. In China, eight out of 10 (80%) respondents expect their investors to be looking for access to live or daily updates on portfolio performance and 71% on operational service level agreements (SLAs). More than half (58%) of the CFOs in China (57% globally) expect a need for daily or live updates on cybersecurity and 40% (51% globally) on environmental, social and corporate governance (ESG).
China’s CFOs anticipate higher priority will be placed on portfolio performance and SLAs than their peers elsewhere: 64% and 50% of CFOs globally anticipate live or daily updates will be required for these respectively.
Although extensive investment will be required to meet these greater demands, they are also conflicting with private capital funds’ traditional leaning towards confidentiality. Intertrust Group warns that private capital funds must either meet the demands or face significant competitive disadvantages and possibly regulatory pressures.
James Donnan, Regional MD, Asia Pacific at Intertrust Group, said: “For LPs in China, ‘performance’ is more than just returns. They want updates on KPIs such as cash or debt levels, daily sales or rent arrears and SLAs, all of which show how a business is being run in a complex market. GPs must focus more than ever on giving LPs the reassurance that comes with good information. This is only good investor relations at a time when there are immense opportunities in China and they need to increasingly compete for additional capital commitments.”
The research also found that 27% of Chinese CFOs (compared to 21% globally) expect that meeting the demands for portfolio performance will incur the largest draw on their resources. Other factors expected to draw on resources include operations (21% in China; 19% globally); regulation (16% in China; 17% globally); cybersecurity (13% in China; 16% globally); investor demands (20% in China; 15% globally); ESG (2% in China; 6% globally); and diversity and inclusion (D&I) (1% in China; 6% globally).
In China, around one in four (24%) CFOs say they will respond to the increased demands by investing in technology, 23% say they will increase the size of their in-house finance teams, 22% will outsource more functionality, 18% will invest in distributed ledger functionality and 11% will retain the existing balance between in-house and outsourcing.
James added: “Outsourcing gives GPs access to the right people and systems with economies of scale, enabling them to focus on attracting and deploying capital. They should partner though with a services provider that has many years’ experience in China and understands the complexities of both the domestic and international markets.”
*Source: Global Custodian in partnership with Intertrust Group; a global sample of 300+ chief financial officers at private capital funds were surveyed between 20 November 2020 and 26 January 2021, including 54 in China
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About Intertrust Group
At Intertrust Group our 4,000 employees are dedicated to providing world-leading, specialised administration services to clients in over 30 jurisdictions. This is amplified by the support we offer across our approved partner network which covers a further 100+ jurisdictions. Our focus on bespoke corporate, fund, capital market and private wealth services enables our clients to invest, grow and thrive anywhere in the world. Sitting at the heart of international business, our local, expert knowledge and innovative, proprietary technology combine to deliver a compelling proposition – all of which keeps our clients one step ahead.