Limited partners are becoming less loyal to general partners and have been reducing the number of relationships they have, according to Coller Capital's Global Private Equity Barometer released on Monday.
The Coller Barometer, which surveyed 110 private equity investors around the world, found that 70 percent of LPs surveyed by Coller said they are becoming less loyal to individual managers.
LPs are also consolidating their private equity investments, fuelling competition among LPs to get into the best private equity funds, as 57 percent of LPs said it has become harder to invest at scale with their preferred GPs.
But the challenge seems to be concentrated among those with total assets between $5 billion and $10 billion, as larger LPs typically get their desired allocations and smaller LPs focus on smaller specialist funds that tend to outperform.
“The problem of investing at scale with preferred GPs is acute for mid-sized LPs,” said Luca Salvato, a partner with Coller Capital. “The large investors writing large tickets are crowding out the mid-size LPs when competing for the preferred GPs.
Despite volatility, limited partners are continuing to focus on private equity, lured by consistent attractive returns
“LPs believe that investment decision making is becoming harder, but volatility is not affecting investors' appetite for private equity,” said Salvato
Nearly 70 percent of respondents to the twice-yearly Coller survey said that unpredictability is making investment decisions inherently more difficult to make, and the sentiment seems stronger in Asia-Pacific where three quarters of respondents said this was true
However, 36 percent of LPs plan to increase their target allocation to private equity, a sharp contrast with the fact that a quarter of LPs plan to reduce their target allocation to hedge funds.
Regarding geographical interest, LPs continue their focus on North America and Europe. In less developed markets, the top three regions where LPs have exposure are China/Hong Kong/Taiwan, South East Asia and India, with 55 percent, 44 percent and 43 percent of LPs respectively invested in those private equity markets
LPs invested in less developed markets plan to increase their exposure to Africa, Central and Eastern Europe and China.