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Limited partners are prepared to increase their allocations in the PE sector
LPs are indeed expecting consolidation among PE managers (General Partner = GP). 64% of LPs believe that at least one of the PE managers they are currently invested in will merge with or be acquired by another manager in the next two years. This is hardly surprising when you consider that a large number of transactions have taken place in recent years.
A clear majority, four-fifths of the LPs surveyed, expressed skepticism as to whether consolidation will lead to better results for LPs. However, a fifth of LPs also recognize the potential opportunities that could arise from strategic consolidation efforts.
Private credit is set for the biggest growth in target allocation among alternative investments. — Around 45% of LPs expect to increase their target allocation to private credit/private debt in the coming year.
LPs consider senior direct loans to be the most attractive credit investment opportunity. European and North American LPs were most likely to agree, with 71% and 74% respectively, compared to 58% in the APAC region. Mezzanine loans were highlighted as an attractive investment opportunity alongside non-performing loans.
Secondaries are the asset class with the second highest expected allocation increase: 38% of respondents expressed the intention to increase their allocation to this strategy. APAC (Emerging Asia Pacific Capital Markets) LPs showed the greatest appetite for this strategy, with almost 70% of respondents planning to increase their allocations. This underlines the great interest in this strategy, which may still be in its infancy in the APAC region compared to the rest of the world.
LPs anticipate that continuation funds will likely be the most common method of raising liquidity over the next 12–18 months. This view is most widespread among North American LPs.
NAV (Net Asset Value) financing is gaining increasing acceptance among LPs. — It is common practice in the market for private equity funds to cover their liquidity requirements by taking out loans. Investments held by a fund can also be considered as collateral for such loans. In the case of financing known as NAV financing or NAV lending, the assets are recognized at their net asset value (NAV). This topic has become increasingly important, especially in times of tense markets and a volatile interest rate environment. This can be a reason for investors to take a closer look before making an investment for various reasons.
According to COLLER, more than two-fifths of LPs expressed satisfaction with the use of NAV financing in the private equity industry. — While many LPs are still uncomfortable with NAV funding, COLLER believes that a better understanding of the strategy is likely to lead to greater acceptance.
About the Global Private Capital Barometer Summer 2024 by COLLER Capital
In the 40th edition of the Barometer, the views of 110 private equity investors from around the world were recorded. The results are representative of the LP population.
Jeremy Coller is considered a pioneer in the secondary market for private equity. Financial News has recognized him as one of the 50 most influential people in the European private equity industry.