LP of the future: relationships with GPs will change

LPs' drive to cut the number of managers they use may create a split between blue-chip multi-strategy asset managers and smaller specialist GPs.

Private equity is busier than ever. General partners are raising bigger funds more frequently, presenting limited partners with a seemingly endless string of re-up opportunities.

It is therefore little surprise that some have taken to cutting back their GP relationships to focus on a select number of multi-strategy managers they know and trust, while also lessening fees. California Public Employees’ Retirement System was an early adopter, having launched a ‘Core 30’ plan in 2011 to reduce its portfolio to 30 managers.

Such activity has placed the onus on blue-chip firms to expand their range of assets, with private debt, real estate and infrastructure among the most common expansion routes for private equity houses. What’s more, GPs are insuring themselves against the possible loss of LPs by tapping directly into retail and high-net-worth investors – thus bypassing the asset managers that historically would have committed to their funds. “The line between LPs and GPs is going to be increasingly blurred,” says Wilf Wilkinson, managing partner at placement agent Acanthus.

“You’re going to get your traditional household mega-buyout names that increasingly look like LPs, because they’re just providing one-stop shop alternative asset solutions for the end capital providers.”

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Increasing parity between brand name GPs and LPs will instead create greater demand for specialist asset managers that can tap into niche segments, Wilkinson adds. Future LP portfolios may comprise a larger proportion of these funds, rather than those who have evolved into competitors. “You’re going to see specialist private equity asset managers continue to have a place in the market to hunt out specialist teams that are genuinely able to offer unique risk-return profiles on the basis of a particular skew of knowledge, experience or a niche approach.”