LP Special: 5 on the bench

As part of our summer LP special, we count down the five LPs who will probably 'sit out' your next fund.

These LPs may have made a commitment to your last fund, but due to strategy shifts, manager consolidation or market sentiment, there’s no guarantee they’ll be there when you return to market.

There’s a high chance the California Public Employees’ Retirement System won’t be committing to your next fund. The Sacramento-based pension plan is in the midst of slashing its manager relationships, from more than 100 at the beginning of 2015, to a planned 30, and it has been actively selling on the secondaries market to streamline its portfolio. Although it has the largest exposure to private equity of all the US pension plans, CalPERS still represents a small chunk of the private equity money raised every year, with annual commitments ranging from 0.3 percent to 2.8 percent of the industry’s yearly total between 2002 and 2015. Its focus on transparency may also deter some general partners wanting to keep their trade secrets away from the public eye.

Investments of Malaysia’s Retirement Fund or Kumpulan Wang Persaraan Diperbadankan (KWAP) were not spared from the volatility in the equity markets last year. While 2015 financial results have yet to be released, the fund’s net investment income fell 38.7 percent in 2014 to M$4 billion ($975 million; €865 million). Hurt by weak commodity prices and a strengthening US dollar, the ringgit has been under pressure in recent months, forcing Malaysian pension funds to re-balance portfolios and retool their alternatives exposure. The Malaysian government has also called for government-backed funds to limit overseas investments, which could hit international fund commitments. As well as the complicated regulatory landscape, political uncertainty and corruption allegations against prime minister Najib Razak mean Malaysia’s domestic issues may be a bigger concern for KWAP.

Last year Swiss powerhouse Partners Group celebrated 10 years on the SIX Swiss Exchange. In that time it has grown its assets under management from €5.5 billion to €46 billion, its EBITDA from SFr67 million ($70 million; €62 million) to SFr367 million, and its staff from 137 to 840. This investor is not going anywhere. But its strategy is changing. In 2011, 24 percent of its private market investments were directs, according to its annual report; in 2015 that figure was 58 percent. Unless you can offer Partners Group something it can’t do itself, industry insiders say you’re unlikely to score a commitment.

Canberra-based Australian National University, which has about A$1 billion ($743 million; €656 million) in assets under management, told Private Equity International it has no interest in committing to private equity in the coming year, focusing instead on direct investments in real estate and infrastructure. ANU had previously allocated 2 percent of its total funds to the asset class and in 2007 had committed capital to funds managed by Sydney-based investment house Babcock & Brown, which lost billions of dollars for investors when it went into liquidation in 2009.

The headline figures for the funds of funds industry do not look good: in 2015 fewer funds raised less money than in any year since 2005; and 2015 was a strong fundraising year. There is still a clear place for funds of funds within the private equity landscape, and those that are thriving are diversifying away from the traditional commingled fund model. But there’s no denying that the smaller shops are having a much harder time raising capital, and a re-up to your next fund is far from certain.