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.