Strong recent performance from private equity houses means LPs are far more willing to back new products from their portfolio GPs than five years ago, the latest Coller Capital Private Equity Barometer shows.
The reason is clear according to Coller: more than 90 per cent of LPs responding to its survey said that when they have backed portfolio GPs in new product offerings, their investment returns have generally met or exceeded their expectations.
Half of LP investors in North America and Europe are now more likely to jump in on new products from their GP relationships, as are almost four-fifths of Asia-Pacific LPs, the research shows.
LP-GP relationships are also moving closer through the increased prevalence of private equity fund restructurings, Coller said, with the transaction type having moved from the periphery to the mainstream of the private equity world.
Two-thirds of North American LPs and almost three-quarters of European LPs have had one or more GP-led secondaries in their private equity portfolios.
Coller said that LPs accept that these processes are now a fixed feature of private equity’s landscape, but they are alive to the risks as well as the opportunities of such transactions.
Investors say that their greatest concerns with future GP-led processes are the possibility of counterparty misalignment or of not having enough information to make a genuinely informed decision, the survey shows.
AltAssets reported last month that the surge in the popularity of GP-led fund restructurings proved they are no longer just for challenged franchises or zombie funds.
Setter Capital vice president Larry Abraham-Ajayi told AltAssets in the wake of LP association ILPA releasing guidance on the deal type that there was no longer a stigma around secondary restructurings, with GPs “looking to proactively manage their LP roster and do it for other strategic reasons”.
The private equity asset class is also becoming more labour-intensive for LPs, according to the Coller Barometer, with two-thirds of investors reporting a heavier workload now than they had five years ago – and many aspects of private equity portfolio management are proving more demanding.
Three-quarters of LPs are spending more time on monitoring and managing their portfolios, and three in five on reviewing co-investment opportunities, the report said.
Coller CIO Jeremy Coller said, “The rigidity that characterised the early days of LP-GP relations is disappearing rapidly.
“Investors are deepening their partnerships with individual managers and becoming far more proactive in managing their portfolios.
“The downside for Limited Partners themselves is that their workloads are also getting heavier, almost across the board.”
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