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Asian limited partners (or investors in private equity) are most disappointed with the performance of their PE portfolios, according to the recent Coller Capital Global Private equity barometer, a twice-yearly survey of PE investors across the world.

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Around three fifths of European LPs and an even greater proportion of Asian LPs are disappointed with the recent performance of their PE portfolios. By contrast, 60% of North American investors declare themselves satisfied with their portfolio, said the survey, which quizzed 108 PE investors.

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Concerns over inadequate GP (general partners or PE managers) reporting, conflicts of interest, and fund terms and conditions will result in over three-quarters of investors declining commitments to new funds from their current managers in 2010, said the survey. Coller Capital recently endorsed the Institutional Limited Partners Association (ILPA) Private Equity Principles which aimed at tougher reforms for GPs in emerging markets.

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Inadequate GP Transparency

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Nearly 79% of LPs will refuse repeat commitments in 2010 because of fund terms and conditions (against 57% in the Winter 2008-09 Barometer) while 76% will do so because of inadequate GP transparency (39% in 2008-09) and 76% on account of perceived conflicts of interest (51% in 2008-09).

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LPs’ medium-term return expectations have fallen sharply in the last year. The proportion of investors expecting annual net returns of 16%+ over the next 3-5 years has fallen to 29% (from 43% in last Winter Barometer). Many LPs report that the poor performance of private equity during the downturn has damaged perceptions of the asset class within their own organisations.

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In Europe and Asia, in particular, half of the respondents said, internal perceptions have been damaged while in North America, nearly 28% of investors felt the same. 

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Two-thirds of LPs have also changed the way they manage private equity as a result of the downturn: 60% of these LPs say they have changed their risk appetite and investment criteria; around half have deepened their due diligence prior to committing to a fund; another half have demanded improved reporting from their GPs while 40% of LPs have strengthened their in-house teams. 

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Exits To Improve

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Over three quarters of investors expect a significant increase in capital calls during 2010 – especially North American LPs, 84% of whom expect to see a big uptick in GP drawdowns in the next 12 months. And, investors expect this money to be put to good use as 85% of LPs think 2010 will be a good vintage. Two-thirds of private equity expect distributions from their portfolio to improve over the next year compared with just 4% in the summer 2009 barometer.

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Secondaries: An important tool

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The Barometer shows that views on the secondaries market have changed in the last couple of years. LPs today see secondaries as an important tool for changing the overall composition and liquidity profile of their portfolios – 92% of LPs now cite the need for liquidity as a reason for investors to sell in the secondaries market (compared with 27% in 2007), and 82% now identify the need to re-balance private equity portfolios (compared with just 39% in 2007).

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