A significant number of Limited Partners (LPs, or investors in PE funds) are keen to back new products launched by their portfolio General Partners, according to a survey conducted by secondaries specialist Coller Capital.
“Limited Partners are much more willing to invest in new private equity products and strategies from their portfolio GPs than they were five years ago,” Coller said in a report. GPs refer to PE and VC fund managers.
Coller Capital drew the conclusions after surveying investors across North America, Europe and Asia Pacific. The firm said that 112 investors responded to its survey.
Nearly half the investors surveyed in North America and Europe and four-fifths of investors surveyed in Asia Pacific said they were keen to back new products launched by their GPs.
This may be because nearly 92% of the surveyed LPs said that they have either met or exceeded return expectations when they backed new product offerings by their existing GPs in the past.
However, in contrast, fewer LPs felt it was appropriate for GPs to sell a stake in the management company to launch new products or finance GP commitments.
The most appropriate reason for a GP to sell a stake in their management company was to facilitate a generational shift in the firm or expand the GP’s infrastructure and manager’s resources, according to the LPs surveyed.
Nearly 89% of the LPs surveyed were wary of GP-led secondaries transactions because of too little available information or potential misalignment between counterparties on the issue.
The LPs also want more diversity in their teams and in their GPs. Environmental, social and governance issues are rapidly becoming key considerations in PE investment decisions but LPs are concerned about the increasing vagueness of the concept.
The survey also showed that a majority of the LPs across regions felt their workload had increased in the past five years. This is especially true of North American investors; almost three-quarters of whom said their workload had gone up in recent years.
LPs are also spending the bulk of their time in portfolio monitoring and sourcing co-investment deals.
“The rigidity that characterised the early days of LP-GP relations is disappearing. Investors are deepening their partnerships with individual managers and becoming far more proactive in managing their portfolios. The downside for limited partners is that their workloads are also getting heavier, almost across the board,” said Jeremy Coller, chief investment officer at Coller Capital.