High Quality Leadership, Transparency and Reputational Strength Emerge as Top Drivers of Trust with LPs
Majority of LPs Trust Private Equity Firms to Do the Right Thing, but also Agree that Tighter Government Oversight of the Industry is Needed
Edelman today announced the findings of new proprietary research focused on private equity’s reputation among limited partners (LPs) in Canada, Germany, UK, and the U.S. The institutional investors, who were surveyed in September and October of 2021, include key decision-makers at pension funds, sovereign wealth funds, foundations, endowments, and insurance companies.
The 2021 LP Survey on Private Equity Reputation not only identifies pivotal issues shaping how LPs perceive the business, but also how private equity firms can build and maintain trust with their investors. The research reveals that investors are increasingly looking beyond investment returns and are taking a critical look at the effectiveness of firms' environmental, social-impact and governance (ESG) practices, including DE&I and employee welfare. It also revealed that reputational strength outranked investment returns as a positive driver of trust when it came to how LPs make capital commitment decisions. Furthermore, LPs in all four countries indicated they are focused on the regulatory environment and its impact on the industry’s attractiveness.
“After spending decades under the radar, the PE industry is operating in a new era where LPs are looking for reputational strength, in addition to investment returns, when making capital commitment decisions,” said Renee Calabro, US Head of Private Equity, Financial Communications & Capital Markets at Edelman. “At the same time, the political agenda means that more attention will fall on private equity firms and their portfolio companies, and that private equity firms will need to work harder to build and maintain their reputations. The message from LPs is clear: private equity firms must balance driving solid returns with a strategic approach to reputation management.”
Key highlights of the 2021 LP Survey on Private Equity Reputation include:
Most LPs trust private equity firms to do the right thing
Seventy-four percent of LPs say they generally trust large-cap and mid-market PE firms to do the right thing. Within financial services, only traditional asset managers and corporate banks ranked higher.
Leadership quality, transparency, and reputational strength are leading drivers of trust in PE
More than 8 in 10 LPs cite high quality leadership (83 percent), transparency across the organization (81 percent), and firms' reputational strength (81 percent) as top trust factors.
For many LPs, employee welfare, DE&I, and ESG are as or more important than investment returns
About 1 in 3 LPs say they give equal or more weight to ESG factors – including GPs' employee welfare policies (33 percent), DE&I initiatives (32 percent), culture (34 percent), and ethics (32 percent) – than they do to GPs' financial performance when making investment decisions.
Private equity remains a magnet for LPs' capital, but some are pulling back
Forty-five percent of LPs say their organizations have recently boosted allocations to the asset class, while 28 percent have significantly cut them. Germany stood out as the only market where more LPs have lowered allocations (36 percent) than raised them (35 percent).
While trust runs strong, so does advocacy for stricter regulation
Seventy-four percent agree that tighter government oversight and regulation of the industry is needed, with half endorsing some or all of U.S. Senator Elizabeth Warren's proposed Stop Wall Street Looting Act, despite its possible negative impact on financial returns.
LPs differ over the potential impact of Warren's bill on PE performance
More German and Canadian LPs say it would hurt PE performance more than help. U.K. and U.S. investors lean the other way, especially ones in the U.S., 53 percent of whom say it would make the asset class more attractive financially.
About Edelman’s Financial Communications Practice
Edelman Financial Communications & Capital Markets (FinComms) is a boutique strategic consultancy with the reach and resources of the world’s largest public relations firm. We advise public and private companies on strategic communications to help effectively position them within the capital markets during normal-course business and transformative events. The FinComms team designs and deploys communications programs for institutional financial service clients – including private equity firms, venture capital firms, hedge funds, traditional asset managers, and other institutional investors. Our support includes executive positioning and reputation management, media relations, crisis and issues management, thought leadership content strategy & creation, regulatory and enforcement actions, deal announcements, and strategic communications support on behalf of portfolio companies. Clients choose to work with us because of our specialized and experienced financial communications team, our ability to provide the full range of Edelman’s services (such as digital and social media, public affairs and employee engagement) as well as our ability to access Edelman’s global network with more than 65 offices around the world.
Edelman is a global communications firm that partners with businesses and organizations to evolve, promote and protect their brands and reputations. Our 6,000 people in more than 60 offices deliver communications strategies that give our clients the confidence to lead and act with certainty, earning the trust of their stakeholders. Our honors include the Cannes Lions Grand Prix for PR; Advertising Age’s 2019 A-List; the Holmes Report’s 2018 Global Digital Agency of the Year; and, five times, Glassdoor’s Best Places to Work. Since our founding in 1952, we have remained an independent, family-run business. Edelman owns specialty companies Edelman Data & Intelligence (DxI) and United Entertainment Group (entertainment, sports, lifestyle).