Even if there is adequate supply of investment specialists to facilitate pension involvement in private capital markets, concern exists that those situated externally may not fully comprehend or appreciate their clients. This concern embraces a wide range of managing fiduciary needs, such as constant communications, regular performance-related data for the filing of reports, transparency in partner relationships and some influence in decision-making that helps determine financial outcomes. Fiduciaries have suggested that some external professionals managing pools also seem unaware of the unique constraints of pension funds, such as prudential restrictions, accountability to trustees and plan members, and the need to maintain low operating costs.
A total of 46 percent of PIAC respondents rated this barrier as important (37 percent) or very important (9 percent). Large pension funds gave this barrier stronger emphasis (61 percent important/very important).
PIAC respondents tended to agree that some professionals managing external pools/syndicates in private capital markets had much to learn about the portfolio requirements of their pension clients. Several re-iterated what have frequently been unsatisfactory partnership relations of the previous decade. One past problem has had to do with the objectives and designs of many high-price products and services offered by partnership managers to pension funds as these have commonly failed to accomodate the needs or interests of the latter.
Somewhat less emphasis of this barrier by PIAC members, apparent in both ratings and comments, may be due to the fact that much Canadian pension participation in such realms as merchant banking and venture financing is, at the moment, undertaken by very large funds with internally-managed alternative/non- traditional asset programs. This said, one respondent to the survey drew attention to American pooling vehicles (e.g., limited partnerships, funds-of-funds) and market advisors and agents who, by all accounts, specialize in pension clients and their requirements as suppliers to private capital markets. Of course, this phenomenon is in line with what has been already discussed above with regard to evolving marketplace infrastructure for private equity investing, et al, in the United States and, as such, is referred to in Of Pools and Pooling and What's a Gatekeeper?.
Something of particular meaning to this barrier may be the advent of advisory committees, composed of pension and other institutional partner representatives, to American limited partnerships. The mandate of these committees is to ensure some element of supplier control over operations and, in particular, on such topics as nvestment valuations, conflicts of interest and potential transgressions of items in partnership agreements. Committees also give pension fiduciaries yet another venue for regular input on matters vital to their role in overseeing and reporting on performance.Endnote 153
One Canadian venture capital institution that has implemented an advisory committee and other consultative initiatives involving pension suppliers is Ventures West Management (see Pension Funds and Venture Investing). In fact, Ventures West has also introduced many of the "best practices" by which to invest syndicated pension money that were described under Barrier #1 (and in Of Pools and Pooling), including reduced professional fees, hurdle rates and more flexibility in implementing changes to management where deemed necessary. This action points to what are some important steps being taken in market development in Canada at present.Endnote 154
Within the Canadian universe of new and developing SMEs seeking external financing, it is sometimes difficult for financial institutions and investors to discern which offer the best expansionary prospects and optimal earnings. The relatively small proportion of business demand that is especially growth-oriented will vary according to industry, product and economic region. Pension fiduciaries rely on industry experts, market analysts and investment specialists to make judgements. Some nevertheless believe that, in all likelihood, there is plentiful supply to private capital markets, relative to demand, currently. Indeed, in the case of the venture capital market, some have argued that there is too much money chasing too few quality deals. The result may be inflated prices and poor decisions.