Limited partners are bullish on private equity, irrespective of their concerns about the wider investment environment. Scanning the results of Private Equity International’s LP Perspectives survey, which sought the opinions of institutional investors in private equity around the world, it is clear that they are still firmly committed to the asset class.
Tidings of increased allocation
Almost 28 percent of respondents are planning to enlarge their target allocation to the asset class in the next 12 months, while 37 percent will keep it the same. Just 3 percent intend to decrease it. The vast majority of respondents – 88 percent – are intending to make fresh primary commitments next year.
Tidings of good performance
The asset class is still expected to deliver outperformance, according to Coller Capital’s Global Private Equity Barometer. The secondaries firm’s survey of 110 LPs, released earlier this week, found that three-quarters of them foresee net annual returns from across their private equity portfolio of more than 11 percent in the next three to five years.
Tidings of more relationships
While certain influential investors – such as the California Public Employees' Retirement System and the Abu Dhabi Investment Authority – are putting their capital into the hands of a smaller number of managers, they are in the minority. Almost 80 percent of LPs are looking to back five or more new GPs in the next three years. The majority – 55 percent – expect to form between five and 10 new relationships, while a further 24 percent expect to form 11 or more, according to the Coller report.
These findings chimed with those of a PEI poll, which found that 43 percent of global limited partners are looking to increase the number of GPs they work with. Just 17 percent of survey respondents indicated they were looking to decrease their GP relationships.
Tidings of mid-market joy
Just another mid-market buyout house? Fear not: the mid-market is the place to be, according to placement agent Probitas Partners. When asked where their institutions would be focusing most of their attention during 2017, 77 percent chose the US mid-market.
Fund restructurings, in which GPs negotiate new partnership agreements, such as an extended fund life and the provision of follow-on capital, and LPs are offered a liquidity option, may be evolving from stigmatised to normalised. Seventy-eight percent of LPs invested in funds restructured by their GPs believe, with hindsight, that they generally “made the right decision about whether to exit or remain invested”, said Coller’s research. It’s not the same as saying they were happy with the options, but it’s a start.
With so much festive goodwill towards private equity, it is surely tempting to indulge in excessive fundraising. As one LP in our Perspectives supplement asks: “Will managers resist the temptation to improve terms for the firms at the expense of risking of upsetting their long-term LPs in a low-yield environment?”