Perspectives 2018: On the minds of top LPs

Our investor panel

Dong Hun Jang, chief investment officer of South Korea’s Public Officials Benefit Association

Christian Kallen, managing director in the fund investment team, Hamilton Lane

Joncarlo Mark, founder of the Upwelling Capital Group and a former senior portfolio manager at the California Public Employees’ Retirement System

Pitichai Yungtawesak, director, private equities, Government Pension Fund of Thailand

What issues keep you awake at night?

Pitichai Yungtawesak: High valuations/price driven up by so much dry powder. I’m sceptical on where we are in the private market cycle.

Christian Kallen: The market is overly focused on top quartile net IRR performance, without considering GPs’ level of risk. As LPs are rewarding GPs that take higher risk, the industry as a whole is motivated to maximise returns by moving up the risk curve.

Dong Hun Jang: Because of high valuations, can we accomplish our expected target return?

Joncarlo Mark: Leverage and pricing in the US middle market are at an all-time high.

What surprised you most in 2017?

JM: The buoyancy of the market and the comeback of Europe in spite of it all .

PY: Not much in 2017 indeed, but a spill-over surprise from 2016: UBER’s successful Series G fundraising.

DHJ: Can the huge amounts of dry powder be deployed successfully?

CK: The biggest surprise was probably that there were no real surprises. From a private market perspective, 2017 has been a steady continuation of 2016.

What’s the biggest challenge this year?

CK: To be sure, it’s the lack of technology in the private markets. GPs and LPs have to be investing more in their own infrastructure to better harvest and analyse data on a fund and portfolio level.

JM: Emerging markets PE, particularly LATAM, which has not had the same comeback as the rest of the PE market.

DHJ: The RFP process is getting more competitive as too many GPs are participating.

PY: Geopolitics globally.

What are the most promising regions and strategies and why?

PY: Aside from the North Korea threats, Japan especially in the mid-market seems to be a bright prospect given its market condition improvement. I’m also foreseeing a structural shift toward more accessible dealflows.

DHJ: European mezzanine and debt strategy. There’s a higher Sharpe ratio because of tougher bank regulation.

JM: Fundless sponsors and family offices who have no need to aggressively invest.  continue to see value in Mexico and India and southern Europe.

CK: Across the board, we continue to favour buyout strategies globally, as well as private credit. We’re recommending that LPs maintain their commitment pacing for 2018 and opt for safety and value where possible. Lastly, invest in infrastructure and people – a dollar, a euro, a yuan spent here will be better spent than one in another fund, CI or secondary opportunity.

What’s your one piece of advice for GPs?

JM: Slow down – give money back to LPs

DHJ: The hurdle rate is too low. There needs to be more co-investment opportunities.

CK: Similar to having a succession plan, GPs need a strategy around diversity and inclusion. If you don’t have one, work to implement one in the coming year.

PY: Stay disciplined and focus on your expertise.