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Demand grows for US private capital CFOs to provide live data on portfolio performance

23 February 2022

Jeffrey Drinkwater

Senior Director of Fund Sales, US

Jeffrey Drinkwater

Senior Director of Fund Sales, US

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US private capital faces growing pressure to provide more detailed real-time data on performance, cybersecurity and ESG. Such detailed information may become essential within two years.

US private capital funds expect investors to demand ever more live data on portfolio performance over the next decade.

They also predict that demand for data on cybersecurity and environmental, social and corporate governance (ESG) will change dramatically, with limited partners (LPs) asking for daily ESG updates. This compares to current expectations of quarterly ESG reporting.

To assess these growing demands and how the industry might respond, Intertrust Group and Global Custodian conducted research among more than 300 chief financial officers (CFOs) at private capital funds. The results are outlined in a new report entitled The future private capital CFO: Unleashing potential in the ESG era.

Live ESG updates to be commonplace within two years

The report found that demand is already accelerating. One in five respondents expect their investors to be looking for access to live updates on ESG within the next two years, with 26% expecting requests for daily and 32% wanting weekly updates.

In terms of portfolio performance, 42% of respondents said their investors would want live reporting within the next decade and a similar proportion (43%) expected demands for daily updates on operations.

More than half (62%) of CFOs expect demands for daily or live updates on steps fund managers are taking to protect data against cybersecurity threats. At the same time, 57% predict a requirement to provide data on Diversity & Inclusion on a live or daily basis.

The demands for data are challenging for the US private capital industry. Historically, private markets are more illiquid and reporting frequency has been lower.

The US market has risen dramatically and is now experiencing some turmoil, so investors are trying to find alternative investments to equities. Private capital is a great way to do that.

The US private capital market has tripled in the last 10 years and it’s probably going to do that again in fewer than 10 years. As more investors switch to the US private capital space, they will demand the same real-time data flows they experience in the public markets.

Large pension funds like the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), as well as endowments and institutional capital are moving money into this sector. CalPERS just increased its allocation in private capital from 8% to 13%.

LP demands for private capital data in the US are growing

LP demands are putting a huge new burden on managers. The need for ESG compliant investment has accelerated because it is now a standard element in every pitch by any institutional investor. It used to be the case that private

markets, given their illiquidity, were less transparent, while reporting was monthly or quarterly.

But that is now changing. We predict that within ten years, LPs will require live or daily updates on a range of metrics.

Portfolio performance, cybersecurity are top priorities in the US

US private capital CFOs anticipate higher priority will be placed on portfolio performance and cybersecurity than their peers in other parts of the world. Only 58% of CFOs globally anticipate live or daily updates for portfolios, compared with 69% in the US. Globally, 60% anticipate daily or live reporting on cybersecurity, compared with 62% in the US.

The survey suggests firms will face increased pressure on how they run their back-office. Portfolio managers are also asking for ESG to be integrated into their investment process. If we combine that with CFOs needing to update LPs on cybersecurity – including breaches – and IT policy, the need for data is huge.

Outsourcing in the US will grow in order to meet LP demands

Many US private capital firms are turning to outsourcing as the potential burden of upgrades, staff retention and training as well as security updates become ever greater.

As staffing increases so do the challenges such as hiring, turnover and training while dealing with employees working from home. The other hurdle facing CFOs is that technology can become burdensome with upgrades, integration and constantly evolving tools that can make the best laid plans obsolete.

The biggest challenges CFOs reported in the survey regarding ESG was the complexity of managing multiple sources of data as well as quantifying and monitoring the ESG implementation process.

Data alone is not helpful. It needs a layer of analysis and intelligence on it. At Intertrust Group, our technology solutions allow our clients to access workflows and performance reporting in a smart and simple way. This frees managers to concentrate on their core business – generating portfolio returns.

Download the full report now

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