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The Markets June 20, 2017
Transparency Lagging in the Alternative Investment World
Transparency remains of growing importance for asset managers
and institutional investors focused on alternative assets, but many are unsure
of how to achieve it.
Reported by Javier Simon
Alternative investing is pushing further into the mainstream for institutional investors, but a survey sponsored by Northern Trust finds best practices around transparency requirements are lagging behind. The study shows transparency continues to lead all investment considerations and has significantly grown in importance following the financial crisis of 2008.
“Degree of transparency” was cited as very important by 63% for alternative and 62% for traditional investments. It was also cited as the most important post-investment consideration by 21% for traditional assets and 17% for alternatives, compared to 9% and 3%, respectively in pre-crisis.
However, there was no consensus around which department within an organization ensures that existing and potential investments are adequately transparent. Responses pointed most often to either the investment management or risk and compliance functions.
“These results tell us that investment transparency is a growing priority, but asset managers and institutional investors remain unsure of how to best achieve it,” says Pete Cherecwich, president of Corporate and Institutional Services at Northern Trust. “As alternative investing has reached the mainstream, the industry would benefit from consistent standards and stronger policies around transparency. Working with the world’s most sophisticated investors, we are committed to enabling greater transparency through continued research and technology development.”
The survey shows asset managers and investors turn to various sources for information about both traditional and alternative investments, including specialist databases, media reports and in-person visits. Four out of five respondents rely heavily on internal data management and analytic capabilities to manage their data. Only 6% outsource this function entirely, the survey finds.
The survey of 200 executives in organizations ranging from private equity firms and hedge funds to corporations, nonprofits and insurance companies was conducted by the Economist Intelligence Unit (EIU) and sponsored by Northern Trust.
A whitepaper detailing the survey findings, “The Path to Transparency in Alternatives Investing” can be found on NorthernTrust.com.