LPs are hungry for new strategies, Coller barometer finds

Limited partners are continuing to build and deepen relationships with their managers and with that comes an increased willingness to back their existing GPs’ expansions into new strategies and product offerings, according to Coller Capital‘s Global Private Equity Barometer for summer 2019.

Many aspects of private equity portfolio management are proving more demanding for LPs, the survey of 112 private equity investors found.

Here are five key takeaways from the survey, which reveals LPs’ views and plans for their private equity portfolios:

1. LPs are increasingly backing new strategies…especially with their existing GPs

“LPs are focused on building these relationships and this is perhaps why they are more receptive with GPs coming up with new products,” David Jolly, a partner with Coller Capital, told Private Equity International.

Part of the reason why LPs are more willing to invest in these new strategies is that the returns have either met, or exceeded expectations for the majority of LPs, Jolly added.

Looking across all regions, close to 80 percent of LPs in Asia-Pacific said they are more likely now than five years ago to back new products or strategies from their GPs. According to Jolly, Asia-based LPs generally have newer PE programmes and may have more gaps to fill in terms of particular types of strategies or funds. This could explain their general receptiveness.

2. GP-led secondaries transactions are on the up

Looking at LPs in Asia-Pacific, only half said they have experience with GP-led transactions in their portfolio. Jolly noted the reason behind this is that private equity in the region is not as deep and mature as in North America and Europe. Such transactions are a by-product of the nature of the portfolio of these LPs; there are also fewer of these coming up in the region, he added.

3. Portfolio management is the most demanding task for LPs

LPs want to deepen their relationships with selected GPs and are trying to be more proactive in managing their portfolios to get better results such as via co-investments, Jolly said.

“All of that together does simply make LPs busier – they are looking to be more proactive with their portfolio and to spend time monitoring and understanding it,” he noted.

LPs are looking for more access to alternatives; they are planning to increase further private equity’s share of their alternatives allocation. That means looking for more GPs they want to invest with and perhaps considering some strategies within those GP families.

4. LPs want more PE even with expected lower returns

Less than a quarter of LPs surveyed this year expect their PE portfolios to generate 16 percent or higher in net annual returns, a significant reduction since the global financial crisis – 45 percent of LPs in 2007 expected their portfolios to outperform.

Still, returns remain strong and consistent. The proportion of LPs reporting net annual returns of 11 percent or higher over the lives of their portfolios has ranged between 80-87 percent since 2015.

5. Diversity is top of mind

LPs prioritise flexible working hours and family-friendly employment conditions more than GPs, while GPs find employee ESG training and coaching more important than LPs.

At PEI‘s Responsible Investment forum in New York in March, Partners Group managing director Esther Peiner said having a more diverse teamcan have a positive impact on business decisions.

“I’m one of few senior women on the investment side of Partners Group, but I also enjoy a relatively heavily female-skewed team under me,” Peiner said. “There are times when we walk into a meeting with an investment committee and have a very different – and arguably more constructive – interaction because, I think, we bring a little less aggression to some of the discussions.

– Brian Bonilla contributed to this report.