Private assets1 investing is an increasing feature of institutional investor portfolios. It is no longer the preserve of ‘multi-generational' investors such as endowments, foundations and sovereign wealth funds. The reasons for the increased allocation are varied, but the primary motivation is the prospects of enhanced total return. More democratic access as smaller investors began to gain access via multi-fund providers has resulted in wider investor interest and an increase in demand. Corporate and Local Government pension funds are participating in this trend with vigour.
Investors, and especially UK pension funds, have made much progress over the last couple of decades on the governance of all aspects of managing their asset pool; does anyone remember the Myners Principles set out back in 20012? This includes steps taken to ensure the sound management of portfolio switches within or between listed asset classes - for example equities to equities or equities to fixed income. The increased scrutiny in this area has resulted in more efficient management of asset and manager transitions to ensure that transaction and market impact costs are minimised and risks, particularly out of market risk, are properly managed.
This paper asks if the allocations to private assets are enjoying the same level of sound governance and whether there is adequate attention being paid to the many frictional costs and risks of switching from generally listed legacy assets to the ultimate destination in private markets. Given that the capital commitments to private assets are contractual but are likely to being drawn down and invested over a period of years, we posit that this issue is of increasing relevance. Further we understand that the increased demand3 for private market assets is resulting in delays to the expected commitment timetables; this amplifies the challenge of the management of the ‘dry powder' of committed but yet to be deployed capital.
To be clear this paper is not about the merits of private markets investing. Private assets have a role to play for many long-term investors, the focus is more on the governance of the movement of capital from legacy asset to destination asset.
1 For the purpose of this paper, private assets refer to private equity, private debt and infrastructure. Property (or real estate) has been a long-standing allocation of many investor portfolios.
This post was funded by T. Rowe Price
Important Information
For professional clients only. Not for further distribution.
This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.
This material is issued and approved by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. For Professional Clients only.
© 2022 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.
