LPs stay bullish amid sharp competition for deals, tough search for managers: survey

  • 70 pct to maintain current PE investing pacing
  • 61 pct committed to first closings
  • 90 pct select managers through proactive search

LPs remain bullish on private equity despite competition for funds that is forcing them to make quicker decisions than in the past. They have also become proactive in GP manager research.

That’s the upshot of Coller Capital’s recently released Global Private Equity Barometer.

Almost 70 percent of LPs plan to maintain their current PE investing pace, and 29 percent were looking to increase their allocations to the asset class.

In addition, several institutions, including Pennsylvania State Employees’ Retirement System and Massachusetts Pension Reserves Investment Management Board, are trimming their PE portfolios to reduce the number of GP relationships and increasing commitment sizes to their core sets of GPs.

The strategy is attractive for many institutional investors who have smaller teams and want to manage the PE portfolio directly.

But the desire to work with a core group of GPs has sharpened competition in the past two years. Fear of missing out on their desired commitment levels to GPs led 61 percent of LPs to commit to first closings of funds, the Coller survey shows.

Indeed, more than half the LPs were concerned that not being able to commit enough capital to their preferred managers was a barrier to better returns.

LPs have been proactive in looking for new GP relationships. Fully 90 percent of the survey respondents relied on their own research and relationship building to select new managers, the survey shows.

Referrals from other LPs also play an important role in GP selection. More than 75 percent of the respondents relied on such referrals from other LPs to make their selections.

Funds-of-funds have been under pressure as more LPs want more co-investments and direct deals, but they still remain an attractive option for more than 71 percent of the LPs.

While only a quarter thought they were important for buyouts investing in North America and Europe, LPs felt the value of funds-of-funds lay in addressing specialist areas like venture capital, emerging markets and sector-specific strategies.

The 112 LPs in the survey included public-pension funds, endowments and foundations, family offices, insurers and sovereign funds from North America, Europe and Asia-Pacific.

Action Item: Read the survey: http://bit.ly/2M9A1mY