Most LPs see new capital sources as threat to returns – Coller Capital

A full 63% of LPs worry about lower returns, though most are confident of maintaining access to the asset class, according to the latest Coller Barometer.

While many private fund managers see the expected influx of capital from non-institutional investors and insurance companies as huge sources of untapped potential, many limited partners are uneasy about the prospect, according to research by Coller Capital.

Nearly two-thirds of LPs polled by the firm believe the increase of capital into private equity from groups such as retail investors and insurance companies poses a risk to their returns, Coller found in its “Private Equity Barometer for Summer 2022”. Around one third believe the influx poses a threat to LPs’ ability to access the asset class.

It is not clear from the results why access is viewed as less of a concern than returns, said principal Lauren Din. “It will be interesting to see how that develops and which parts of the market retail and insurance capital flows into,” she added.

Fears around the impact of non-traditional capital sources come at a time of record returns for LPs. Forty-two percent reported net annual returns of more than 16 percent across the lifetime of their PE portfolios. This level has been exceeded only once – in 2007 – since the Barometer was first published in 2004, Coller noted.

Seventy-one percent of respondents said their private equity portfolios have outperformed their public portfolios since the global financial crisis. Forty-two percent plan to increase their target allocations to PE over the next 12 months, with 6 percent planning a decrease.

But rules potentially expanding the investor base and low returns elsewhere are likely to prompt new money into the market, and are already prompting existing investor types, like high-net worth individuals and insurance companies, to invest more heavily.

“Valuations in the public markets have moved since [the survey closed on 30 March],” said Din. “As we know, there is a lag in valuations in the private markets, and some private equity funds will have exposure to public equities through assets that have been taken public. Whether we were at the top of the market and headed towards a dip or a downturn is too early to say.”

Many of the largest firms see non-institutional capital as central to the growth of private assets under management, starting with the private wealth segment, which targets high- and ultra-high net worth individuals. Firms including Apollo Global Management, KKR and Blue Owl Capital have all launched wealth management units or hired wealth executives in the past two years in order to tap high and ultra-high net worth individual investors.

Blackstone doubled the size of its European wealth management team in the space of six months and had 200 executives globally as of March, PEI reported.

The Barometer is based on responses from 110 private markets investors across North America, Europe, and the Asia-Pacific region. Banks and asset managers, insurance companies and public pension funds were the three best represented groups.