LPs say it’s time to tweak portfolios as grim winter coming for PE: Coller Capital study
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Most Asia-Pacific and North American limited partners or LPs believe their private equity portfolios need modifying to prepare them for the next economic downturn, according to Coller Capital’s Global Private Equity Barometer Winter 2019.   

Secondaries fund specialist Coller Capital has released its latest private equity barometer based on an interview of 113 investors. 

The firm reports that 70-80% of Asia-Pacific and North American LPs want to modify their portfolios while the number is lower for European LPs with only 45% believing their portfolios need modification. 

Nearly nine out of 10 LPs acknowledge the significant risks to their medium-term PE returns posed by today’s macro environment and high asset prices. 

“We have experienced one of the longest stock market expansions in history,” said Jeremy Coller, founder and chief investment officer of Coller Capital, “but investors know that winter is coming. They are telling us that differences in the quality of managers’ strategies and teams will again lead to a significant divergence of returns between general partners (GPs) – just as it did in the GFC (global financial crisis).”

LPs also want to allocate more capital to Asia, the Barometer says.  

Specifically, 65% of the investors polled view India as an attractive destination. Other attractive destinations are Southeast Asia and China. 

Yet, two in five LPs said that they have been disappointed by the performance of their emerging market private equity portfolios over time – a picture that remains almost unchanged from the Coller Capital ’s Barometer of Winter 2015-16, the latest survey says. 

On a positive note, while 3% of LPs told Coller Capital in 2015-2016 that their emerging markets returns had exceeded expectations, in the latest survey, this number was higher at 6%. 

Four-fifths of LPs are expecting annual net return of over 11% (in dollar terms) from their private equity portfolios while the remaining are expecting a net return of over 16% over the next three to five years. 

The survey also notes that LPs expect a divergence between GPs in fund’s terms and conditions over the next five years. Here, LPs generally expect to see the pendulum swinging in their favour. Three in five LPs expect an overall reduction in management fees, and one in five expects an overall reduction in carried interest rates, the survey said. 

Other key highlights of the Coller Capital’s latest Barometer 

Private equity commitments and returns

Investors are more frequently having to settle for smaller commitments to their chosen private equity funds than they did in the past. 

Over half of LPs have had their requested commitments scaled back on multiple occasions in the past 12 months (compared with 42% of LPs in 2015-2016). The areas where this is happening most often are venture capital and mid-market buyout funds, investors say.

Investor demand for venture fund commitments in particular – especially in North America – is not surprising. 

For the first time in the Barometer’s history, investors are expecting higher returns from North American venture in the next few years than from North American buyouts.

Private equity and climate change

Almost three in five investors in the Asia-Pacific and Europe plan to modify their portfolios to combat climate change in the next five years – but less than a third of North American investors plan a similar change. LPs who do expect change to their investment strategies are broadly planning to replace oil & gas exposure with investment in renewable energy and climate-friendly products and services.

Private equity’s reputation 

Many investors – and a significant majority of North American LPs especially – say that criticism of private equity by politicians and the media has recently grown louder.  

Specifically, three-quarters of investors in all regions of the world say it is incumbent on national and regional VCAs (venture capital associations) to do more to explain the industry and defend its ‘licence to operate’.

However, LPs are also less sure if  this means that GPs should release more information about their portfolio companies. The Barometer notes that they are fairly evenly split as to whether the industry should release information on their portfolio company decisions to a wider group of stakeholders, or whether the industry’s current levels of confidentiality are necessary for GPs to be able to effect rapid change. 

Private debt

LP commitments to private debt funds appear to be plateauing. Equal proportions of LPs plan to accelerate and slow their pace of commitments to private debt funds in the next two years. In comparison, Coller Capital said that in the Barometer of Winter 2015-16, the number of LPs planning to accelerate were three times that of those aiming to slow down. 

LPs see significant challenges ahead for private debt. Around three-quarters of investors foresee a risk both of increased default rates and of lower recovery rates as a result of more covenant-lite structures. More generally, they worry that the increasing number of debt providers will lead to lower returns across the board. In such an environment, only one in six LPs say they are likely to invest in debut private debt funds from a new manager.


Co-investing is continuing to grow in popularity. Almost 70% of private equity investors now co-invest alongside GPs, and some 44% of LPs actively pursue co-investment opportunities. 

Indeed, among the largest LPs, over one-third actively give preference to managers likely to offer them co-investments.

The most common reason LPs give for not doing more co-investments is a lack of internal resources to meet GPs’ investment deadlines, Coller Capital said.

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