Over three quarters of LPs are planning to refuse commitments to new funds from their current managers, according to Coller Capital’s latest Global Private Equity Barometer.
The decrease in allocations is due to inadequate reporting, conflicts of interest and fund terms and conditions on the part of GPs.
This year 79% of LPs will refuse re-ups because of fund terms and conditions, up from 57% in the winter 2008-09 Barometer, 76% will do so because of inadequate GP transparency up from 39% in the previous barometer and 76% will refuse re-ups because of conflicts of interest, up from 51% last year.
On the flip side, medium-term expectations have fallen sharply in the last year with only 29% of investors expecting 16%+ returns over three to five years, compared to 39% in the same period last year.
Europe and Asia have been affected particularly badly, as over half of investors say internal perceptions have been damaged where as in America only 28% said the same.
Risk appetite has also been affected over the past year. Two thirds of LPs have changed the way they manage private equity as a result of the downturn, 60% have changed their risk appetite and investment criteria, approximately half have increased their due diligence prior to committing to a fund, and another half demanded improved reporting from GPs. LPs have also begun strengthening their in-house teams.
CIO of Coller Capital, Jeremy Coller said: “For many private equity investors it’s a case of ‘once bitten, twice shy’. The growth of private equity as an asset class is inevitable in the long-term, but we should understand that for many LPs, now, private equity is a harder sell internally, and for all LPs, GPs now have more to prove.”
In more positive news, over three quarters of investors expect an increase in capital calls during 2010, particularly in the US with 84% expecting to see an uptick in GP drawdowns in the next 12 months. And 2010 is predicted to be a good vintage year.
In terms of opportunities LPs view buyout transactions of less than US$1bn in Europe and North America as the best private equity investment opportunity, followed by growth capital deals in the Asia-Pacific region.