Insights

Callan’s annual survey on environmental, social, and governance (ESG) principles is designed to better understand the views of institutional investors and the trends driving ESG adoption. In our recently published 2022 ESG Survey, we found that 35% of respondents incorporated ESG into their investment decision-making process, down 14 percentage points from the previous year’s level, the first decline since 2019 and the lowest level since 2015. This can be attributed in large part to a significant drop in the share of public plans incorporating ESG, likely due to a shift in the respondents to this year’s survey.

Institutional investors with allocations to private equity are becoming more interested in finding emerging managers to handle parts of their investment programs. (Callan defines an emerging manager as a firm raising its first, second, or third institutional fund, with a fund size between $50 million and $1 billion.) As a result, we are seeing more private equity emerging managers begin to offer products to meet this demand.

In this blog post I wanted to lay out some recommendations for emerging managers that seek to receive institutional allocations for private equity investments, and how they can best position their firms to achieve this goal.

How Are Capital Markets Projections Constructed?

Guiding objectives and process

Underlying beliefs guide the development of the projections

• An initial bias toward long-run averages
• A conservative bias
• An awareness of risk premiums
• A presumption that markets are ultimately clear and rational

Reflect our beliefs that long-term equilibrium relationships between the capital markets and lasting trends in global economic growth are key drivers to setting capital markets expectations

Long-term compensated risk premiums represent “beta”—exposure to each broad market, whether traditional or “exotic,” with limited dependence on successful realization of alpha