Investment managers should be looking to diversify portfolios as client demand continues to challenge the private equity market.
Head of QIC global private equity, Marcus Simpson, said that private equity remained a promising investment tool, but the industry needed to address some issues when it comes to attracting investors.
"Cost, illiquidity and hubris are still of concern to investors, who are now looking for a 'back to basics' approach and more focus on the true driver of return, investment risk and the best way to execute programs," he said.
"Improvements in these areas are particularly important as private equity deals become more complex, with a greater geographical mix of investments," Mr Simpson said.
With the investment market volatile, private equity saw a substantial shift in demand by investors, who have had increasing influence over both mandate construction and fees.
Mr Simpson said smaller investment managers may become more significant, with investors looking for real insight across different return drivers.
"With emerging markets growing in popularity, local knowledge is crucial," he said.
"That means in emerging markets, disciplined local firms may well give the more established western firms a real run for their money."
While private equity continues to be a strong investment option for long-term investors, Mr Simpson said that managers who do not adapt to the changing market landscape will struggle.
"Some investment managers will not be able to adapt as conditions become more challenging, and as a result, the number of managers in Australia may contract as manager selection becomes critical," he said.
