In November, UK-based consultancy Pivot Partners released a study that for limited partners must have felt like déjà vu all over again.
Despite the efforts of public relations firms and trade organisations alike, private equity fund managers continue to give the industry a bad name through their inability to communicate, the study suggested.
It found that 77 percent of limited partners felt that GPs could communicate better with LPs, while 86 percent believe that private equity has a poor reputation with the general public.
“GPs and their stakeholders recognise that both the industry’s reputation and the communication practices of individual funds require urgent attention,” the study said (see p. 78 for more).
LPs cited a number of factors that have contributed to private equity’s poor public reputation in recent years, including The Blackstone Group’s investment in Southern Cross, Terra Firma’s investment in EMI, Mitt Romney’s US presidential campaign and the “Occupy” movements in the US and UK.
“The public tends to bundle private equity managers in with bankers. Hence, the reputation for inflated salaries, and inflated self-importance, gambling and asset-stripping prevail,” said a European venture capital professional quoted in the study.
But regardless of what LPs think of GP’s communication skills, they’re unlikely to start voting with their feet as long as managers continue to outperform. Another study released last month, from the Private Equity Growth Capital Council, reported that private equity investments have outperformed all other asset classes for US pensions for the past decade.
Private equity generated a median 10-year annualised return of 10 percent for the 146 US pensions included in the study, compared to 6.7 percent for real estate, 6.6 percent for fixed income and 5.8 percent for public equities.
“Time and again, private equity has proven that it’s the single best asset class for public pensions, by delivering superior returns over long time horizons,” Steve Judge, president and chief executive officer of the PEGCC, said in a statement.
The Massachusetts Pension Reserves Investment Trust Fund produced the highest private equity return of all pensions in the sample: 15.4 percent over 10 years and 9.1 percent over five years.
While there’s clearly room for improvement in the way GPs communicate, LPs are likely to remain fairly forgiving as long as they’re delivering numbers like that.