Limited partners want more interaction with one another and are looking to improve oversight of their portfolios, according to Coller Capital‘s Global Private Equity Barometer for summer 2020 published on Monday.
Coller conducted the survey between February and March, before the covid-19 pandemic struck global markets, and gathered responses from 107 LPs.
There’s been a big leap in LP satisfaction with GP transparency: 82 percent are satisfied with the transparency of their GPs’ disclosures and communications, up from less than 40 percent in the years following the global financial crisis.
Remco Haaxman, a partner at Coller Capital, noted that this is a function of LPs being required to be much more on top of their portfolios. “LPs face a lot of scrutiny these days that’s really forcing them to be more informed about what they own and how they own it.”
Haaxman added that advancements in technology have also made it easier for LPs to be much more knowledgeable about their portfolios.
In line with this, half of LPs expect to ask GPs for independent portfolio valuations, the survey found. Sixty percent of LPs also expect to use data providers that collect standardised performance data direct from GPs within the next three years.
Investors also want more interaction with one another. LPs in North America and Asia-Paciﬁc would most like to know more LPs from elsewhere in the world. For North America, this could be due to certain types of investors being unable to travel, such as public pension funds, even before the coronavirus pandemic, Haaxman noted.
In Asia, the relatively immature private equity market is a reason for Asian LPs to want to establish relationships with investors in more developed markets, he added.
The private equity industry is also going to become more concentrated, with three-quarters of LPs expecting to allocate capital to the largest GPs in the next five years.
According to Haaxman, this is a “virtuous circle for large GPs and a trend that amplifies itself”.
He noted that these GPs have done well throughout and in the aftermath of the global financial crisis, and better performance increases the chances of investors re-upping commitments. This also increases these firms’ budgets to hire more people and spend more on investor relations.
Lastly, climate change and ESG remain hot topics among LPs.
The survey revealed many LPs think GPs are not taking the risks of climate change seriously enough in their investment policies and practices. More than 75 percent of Asian LPs hold this view, compared with 65 percent of European LPs and 47 percent of North American LPs.
European LPs remain the most outspoken and proactive about climate change and ESG. There is broad consensus among European LPs (83 percent) on ESG policy in their organisations and well over half of them expect to be carbon neutral by 2030.