Family offices, SWFs lead efforts in direct investing: study

Palico’s poll of 92 LPs found that 59% of them will seek direct investing.

More than half of the 92 LPs surveyed by online PE marketplace Palico say they will invest directly in PE, bypassing third-party managers, according to Palico’s “Global Private Equity Compass” for autumn 2015.

Fifty-nine percent of LPs in the poll that included sovereign wealth funds, corporate pension funds, insurance companies, endowments and foundations, public pension funds, asset managers, funds of funds and family offices, said they will directly invest alongside other LPs.

Of the category of LPs who responded positively to direct investing, the majority of them were family offices and sovereign wealth funds, a Palico spokesman told Private Equity International.

The spokesman said it makes sense because family offices are generally more entrepreneurial and sovereign wealth funds are the largest vehicles out there with the most resources across the board, including money, human resources and the ability to hire top talent.

In August Palico published a dataset that showed family offices are the biggest allocators to PE in terms of the portion of their assets, and sovereign wealth funds’ allocation to PE has been outpacing that of other types of investors.

Only 7 percent of LPs said they are not considering direct investing as part of their investment strategy.

The spokesman said that given the high number of investors that seek to cooperate with other LPs for direct investing, it was interesting that only 33 percent of LPs think their resources are lacking or severely lacking. This number was higher, at 41 percent, among LPs in emerging markets, compared with 31 percent of LPs in the US, Canada and Europe.

Regarding cooperation, 71 percent of LPs said they share information with their peers to improve PE returns in their portfolio, and 89 percent of those LPs collaborate to seek references on funds.

Whereas just 35 percent of LPs overall review their practices when a high-profile investor, such as CalPERS, makes changes to its policy, a whopping 60 percent of public pension funds said they do so.

The Palico spokesman said the results reflect a bigger trend in PE which is to diversify away from the classic 10-year fund.

Palico surveyed 159 GPs and 92 LPs between 29 July and 14 September.