LONDON, May 5, 2021 – Willis Towers Watson has launched a dedicated working group that brings together expertise from both its public and private equity investment research teams, to assess the potential for what it calls a ‘new breed’ of investment management firm that invests across the entire equity spectrum.
The working group, which was established in March 2021 will actively evaluate opportunities in the public-private equity space.
In its latest paper, entitled Institutional allocation to private equity, Willis Towers Watson has shown that while there are strong structural tailwinds to support the continuing rise of private equity in institutional portfolios, the private equity industry itself needs to more actively evolve the way in which it structures its investments in order to fully capture the growth potential.
One of the focus areas for Willis Towers Watson’s working group is the potential for a new type of passive, or beta offering, within private equity that allows asset owners to access and hold these investments in a cost-effective way. Since many private businesses are already well-established with strong management in place and strong cash flows, the working group believes they are well positioned to compound earnings over a longer time horizon than current structures allow.
Furthermore, Willis Towers Watson is challenging private equity managers to take additional steps to improve their environmental, social and governance (ESG) standards. As part of this effort, it has developed a set of guiding principles to help them formulate their own frameworks, including assisting them to report on the carbon emissions being generated by their investments as a first step on a route towards net zero.
Andrew Brown, Head of Private Equity Research at Willis Towers Watson comments:
“What we currently have within the private equity space is a model that hasn’t changed in the last few decades. Whilst that structure has performed well over this period, we are increasingly seeing capital moving away from defined benefit pension schemes into defined contribution, so there is a need to innovate in order to identify a structure that enables a wider investor base to access opportunities.
“This could mean relooking entirely at the way that some private equity funds are structured. For example, specific fund terms can mean that private equity managers may be under pressure to sell out of investments prematurely in order to facilitate further fundraising; whereas long-dated funds and evergreen structures could be a way of mitigating the need to do so. This could facilitate the creation of a form of ‘buy and maintain’ private equity that may better suit an investor with a longer-term investment horizon.”
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas – the dynamic formula that drives business performance. Together, we unlock potential.
