Investors predict industry contraction

One quarter of private equity firms will fold, according to investors, as the economic downturn hits the industry.

This is one of the findings from the latest Global Private Equity Barometer by secondaries investor Coller Capital.

LPs expect a quarter of today’s fund managers – 28% of VCs and 23% of buyout firms – to fail to raise a new fund over the next seven years. They also think that a tenth of all private equity investors will default on fund commitments over the next two years.

The impact of the recession is expected to swing the balance of power between LPs and GPs in favour of the former – around four-fifths expect terms and conditions of new buyout funds to be more amenable, and two-thirds think the same for venture.

There are also criticisms over transparency, with over half of respondents thinking a significant number of GPs need to improve, and one in 10 thinking most GPs need to do so.

Jeremy Coller, CIO of Coller Capital, said: “Scarce capital, slower returns and political uncertainty are the immediate future for our industry. Living with these conditions will require all our celebrated spirit of partnership. LPs will need to be both patient and realistic. GPs will need to adapt quickly to investors’ changing requirements. Above all, LPs and GPs will need to stand together in the face of any ill-considered policy initiatives. It would be all too easy to break private equity’s alignment-based model by regulating away its flexibility or taxing away its incentives.”