LPs’ greatest fear is too much money coming into PE

Too much money pursuing too few opportunities across all areas of private equity is investors' main issue, a survey by placement firm Probitas Partners found.

Investors’ greatest fear entering the new year is that “too much money is coming into all areas of private equity”, according to Probitas Partners’ Private Equity Institutional Investor Trends for 2019 Survey Results.

This concern ranked only fourth when the firm conducted the survey in 2007.

For 2019, the second biggest fear is that mid-market purchase prices are too high, while third is that the private equity market “feels like it is at the top of the cycle”. However,  there is no agreement among LPs surveyed what will trigger a market turn or when it might occur.

Probitas noted that although the top three concerns were similar for investors across all three geographies, there were some marked differences across the types of investors.

For example, 42 percent of funds of funds fear large fund managers are becoming generalised asset managers, moving away from their core private equity strengths, compared with 25 percent of overall respondents.

In addition, 33 percent of family offices said the industry is facing a technology bubble, compared with 11 percent of total respondents.

A Japanese bank, meanwhile, had another concern: how GPs deal with disruption at the portfolio level.

Going into 2019, Probitas’s survey also revealed that 61 percent of LPs will be primarily focused on evaluating re-ups with GPs with a limited look at new relationships, while 27 percent will be actively pursuing relationships with new managers.

In terms of sectors and geographies of interest, US mid-market buyouts, US growth capital funds and US small market buyouts hold the top three spots and are the only sectors attracting more than 50 percent of LP interest globally.

Probitas conducted the survey in late September to early October 2018. Ninety institutional investors participated, with respondents from public and corporate pension plans, funds of funds, insurance companies, family offices, endowments and foundations.