Team stability tops LPs’ wish lists

New research shows 98% of investors anticipate a significant market downturn within the next three years.

Team composition and organisational stability are more important to investors than consistency of performance or track record, a new survey from placement agent and advisory group Asante Capital reveals.

Asante’s Global Market Touchpoint Survey for Q4 2016 notes that “past performance is no longer an accurate predictor of future performance”, in light of which it asked investors which metrics they relied upon most heavily. More than half – 53 percent – chose team composition and organisation stability, while consistency of performance ranked second with 31 percent, followed by strategy with 29 percent and track record with 22 percent. Just 4 percent said past performance is the most accurate predictor.

The report surveyed investors across the globe with combined assets under management of more than $300 billion and more than 2,500 collective GP relationships.

In anticipation of an economic downturn, investors are putting a premium on investments that can weather stormy conditions.

The survey found that 98 percent of investors anticipate a significant market downturn within the next three years. More than half of investors said they would accept a 4-5 percent discount on returns in return for strong downside protection, while 27 percent said they would only accept a discount of 1-3 percent and 13 percent said they would accept a discount of 6-10 percent.

Lower mid-market and small-cap managers are proving the most popular with investors, with 72 percent of respondents looking to increase their exposure to such GPs. Almost 60 percent are seeking greater exposure to specialist managers, while 35 percent are looking to increase their commitments to special situations firms.

The survey found that, on average, investors are seeking a premium of a net 0.5x and 5 percent internal rate of return on emerging markets investments. The majority of investors expect 2.5x or 25 percent net IRR or higher from emerging markets funds, while most expect 2.0x and 20 percent net IRR or higher in the US or Europe.

Brexit is a concern for investors, with 37 percent indicating they believe the UK will be worse off outside the EU and a further 33 percent indicating they do not believe the UK will be better off outside the EU. However, 78 percent said they would not be putting UK-based investments on hold. Just 13 percent said they will be putting investments on hold for the next 12 months, and a further 7 percent plan to pause investments for the next three to six months.