Transparency demanded in private markets; why make it so hard?

Why make it so hard?

Occasionally, maybe even frequently, we come across investment strategies that are unexplored or even unknown. Naturally, the first port of call is a search engine to see what we can learn. Regrettably the outcome is rarely enlightening. Most have a promo picture and vapid words, a list of the team and a contact typically reminiscent of ‘[email protected]’.

The worst have nothing to offer and are unresponsive, some provide contact, yet it can take much effort to get useful information. There are also the few willing to do so, who offer great insights and lessons learnt.

Why is there so little effort to provide meaningful information? Who does the fund manager think is accessing their sites, and willing to pursue it further to consider the option for a client portfolio? The bet is that it is 99% professional investors and financial advisers, or those that are validly seeking relevant information. If performance is good enough, why be so shy?

There is nothing wrong with marketing. It is ubiquitous and only the foolish would swallow every product push. One would expect a decent fund to promote its methods and wares. Listed equity and index-linked debt fund managers are (relatively) stellar in terms of insights, commentary and disclosure.

Further down the chain into alternatives it drizzles down to drops. Many of these sites have commentary and information that is either dated or unavailable. This is typical of private equity and debt providers, along with most other alternative funds.

Yet this is an area where information and knowledge are most lacking. It applies to the nuance of the asset class segments, the comparative data and sector in which it operates. There is no reason why this is confidential. Naturally, one expects any information to reflect the approach of the organisation;, that is nothing new and advisers can edit overly promotional material.

If one can elicit a response, some reports can be of good value. Then, it is incomprehensible why they are not easier to access.

The assumption is that it is based on the view that the fund wants to know who is looking into its product, or that competitors will get insight into what they do, that, or worst of all, it may disclose awkward truths. If it is other providers, surely in unlisted markets most fund managers are aware of other participants in their chosen field? And if competitors did learn about the current portfolio, it is a look backwards in time without any necessary insight into the future. If it can be copied from a few pages on a web site, it likely has little value.

The reality is that it might highlight issues it does not want questioned without curating the reply. Does the claimed investment return really stack up? For example the internal rate of return (IRR), an ultimately muddy measure subject to much interpretation.

Non-traditional investments are becoming critical to portfolios. Without guidance and capacity to compare, most advisery groups risk being led along the path by managers that knock at the door. It is critical that the industry insists on more information and transparency. 

Giselle Roux

Giselle Roux is one of Australia's most well-known and highly regarded investment strategists, having held the role of Chief Investment Officer at both Escala Partners and JB Were. She has also held a number of senior equities analyst and investment banking roles including with Citigroup, Bank of America Merrill Lynch and McIntosh Securities. Giselle is a host of Inside Network events, a member of the Advisory Committee and regular contributor to the Inside Adviser and Investor publications.