Stanford researchers recently set out to study the lack of transparency in the private equity industry. In their paper, they noted that “the industry is increasingly noted for its misconduct, misrepresentation, and outsized economic rents.”
This lack of transparency makes it difficult to assess the true economic impact of private equity. The researchers found that “opacity is an unchecked tax on participants,” and that “bringing new levels of transparency into the asset class can, on its own, create significant value.”
Transparency enables higher returns
The paper notes the importance of data and automation in creating transparency in private equity. Legacy systems involving faxes and paper records are no longer adequate, and effectively create a curtain of secrecy around PE activity.
Digitization can help to bring private equity into the light, and make it more accountable to investors. However, digitization alone is not enough, as investing platforms need to provide transparency into fund managers’ holdings, strategies, and performance.
This is where Gridline shines. Our platform provides full transparency into fund managers’ portfolios and funds, allowing you to make informed investment decisions. We believe that digital transparency is one of the keys to unlocking the true potential of private equity.
This transparency is particularly important in the private equity world, where the difference between top- and bottom-quartile managers is nearly 20% per year, compared to just 2.6% in public markets.
One reason for this is that the best investments are often made in small, niche markets that require expert knowledge to navigate. In fact, the data shows that 69% of angel investments made after an hour or less of due diligence lost money, while 58% of deals made after a week of research were winners.
This is where PE firms have an advantage over public market investors. However, this advantage is negated if investors don’t have the ability to properly vet fund managers. Gridline’s platform provides the tools you need to conduct due diligence on fund managers and make informed investment decisions.
Not only that, but with low minimum investment requirements and a diversified portfolio of funds, our platform is accessible to investors of all levels. So if you’re looking to get started in private equity, there’s no better place to start than Gridline.
Transparency boosts confidence
Beyond the direct impact on return potential, private equity transparency also boosts confidence in the industry as a whole. By providing reliable performance data, investors can be more confident in both the short- and long-term prospects of the funds they’re investing in.
This increased confidence has ripple effects throughout the private equity ecosystem. For example, it makes it easier for limited partners to justify commitments to private equity funds and gives general partners a boost when marketing their next fund.
But perhaps most importantly, increased transparency gives society as a whole greater confidence in private equity. By aligning the interests of all stakeholders, from limited partners to the companies being invested in, private equity can play a positive role in society.
For instance, ESG investing has long been a topic of debate in the private equity industry. But with reliable performance data, investors can have greater confidence that private equity funds are indeed making a positive impact when they invest in companies with strong ESG credentials.
Ultimately, the economic benefits of private equity are clear. But in order for the industry to realize its full potential, it must become more transparent. Gridline is leading the charge in this regard, and is uniquely positioned to provide the tools and data needed to bring private equity into the light.