The market is overly focused on top quartile net IRR performance, without considering GPs’ level of risk. As LPs are rewarding GPs that take higher risk, the industry as a whole is motivated to maximise returns by moving up the risk curve.
What surprised you most in 2017?
The biggest surprise was probably that there were no real surprises. From a private market perspective, 2017 has been a steady continuation of 2016.
What’s the biggest challenge this year?
To be sure, it’s the lack of technology in the private markets. GPs and LPs have to be investing more in their own infrastructure to better harvest and analyse data on a fund and portfolio level.
What are the most promising regions and strategies, and why?
Across the board, we continue to favour buyout strategies globally, as well as private credit. We’re recommending that LPs maintain their commitment pacing for 2018 and opt for safety and value where possible. Lastly, invest in infrastructure and people – a dollar, a euro, a yuan spent here will be better spent than one in another fund, co-investment or secondaries opportunity.
What’s your one piece of advice for GPs?
Similar to having a succession plan, GPs need a strategy around diversity and inclusion. If you don’t have one, work to implement one in the coming year.
Private markets advisory business Hamilton Lane has more than $47 billion in assets under management.