2023-06-12 05:43:40
London (ots) – The majority of institutional investors (Limited Partners, LPs) see the prospects for private equity in North America and Europe in the years 2023 and 2024 as positive and assume that the years will be strong, according to the current one Global Private Equity Barometer by Coller Capital. Investors are more balanced on the prospects for private equity in Asia Pacific.
- Health care and pharmaceuticals are attractive sectors for institutional investors, as are funds for small and medium-sized companies and for special corporate situations
- Due diligence efforts have increased over the past two years, with investor travel returning to pre-Covid levels
- Negotiating the conditions is a challenge in the investment process for the majority of investors
- For three quarters of institutional investors, artificial intelligence is gaining in importance when initiating private equity transactions
- Most institutional investors do not see the importance of environmental, social and governance standards in the private equity industry as threatened by the anti-ESG movement in the USA
For private equity, most investors believe that the healthcare and pharmaceutical sectors will offer attractive investment opportunities over the next two years. Three quarters say the same regarding IT and business services. There are clear differences when it comes to energy, where more LPs are in favor of renewable energies than fossil hydrocarbons.
With regard to investment strategies, the majority of investors see good opportunities in funds for medium-sized companies (mid market) and for companies in special situations (special situations) over the next two years. Three quarters of LPs also see good opportunities in secondary market investing, seeing an increasing number of institutional investors using this market to rebalance their portfolios. Fewer LPs see opportunities in fund managers (general partners, GPs) for large and mega buyouts – a marked shift from their view five years ago. Investors are also concerned regarding the level of leverage involved in buyout deals. Half think the current share is too high.
“Investor appetite for private loan funds shows no signs of abating,” he said Michael Schad, Partner and Head of Coller Credit Secondaries. “It’s interesting to see that they expect a greater concentration of capital in larger private debt fund managers over the next few years.”
Investor behavior in due diligence and travel
Over the past two years, investors have increased their scrutiny effort, at a higher proportion among European LPs than among those in North America and Asia Pacific. Due diligence on fund exposures is a key reason LPs’ travel has returned to levels not seen since the pandemic began. Investors are also likely to resume travel to conferences and AGMs, although a rather small proportion of them plan to return to their previous business travel schedule. In the investment process itself, three fifths of investors see negotiating conditions as a challenge, but less so assessing managers or accessing funds. They assess the importance of incentives for a first degree differently.
Importance of artificial intelligence for private equity
Investors are open to the use of artificial intelligence (AI) in the private equity transaction process. Three quarters of LPs think it might be a useful tool for initiating deals. Three-fifths of LPs believe it might be useful for evaluating a deal or for post-deal exposure to portfolio companies.
Anti-ESG movement in the US
The importance of environmental, social and governance (ESG) standards in private equity is still being taken seriously by institutional investors, despite the “anti-ESG movement” emanating from Republican governors in the US. Three quarters of LPs do not expect this to affect the importance fund managers attach to ESG. European LPs are ahead of their global peers when it comes to establishing ESG teams within their organizations: three quarters of European LPs have already hired their own ESG staff. For North American LPs, the reverse is the case: the same percentage say they have no plans to hire dedicated ESG staff.
Performance von Buy-and-Build-Portfolios
Across all private equity portfolios, LPs are posting record returns, with two-fifths generating annual net returns of 16 percent and more over the life of the portfolios. Performance differs per strategy, particularly between buy-and-build investments and those more geared toward organic growth. Two-thirds of LPs said their buy-and-build portfolios outperformed. Investors also provided input on where they believe the best private equity investment opportunities will come from: About three-fifths of LPs said investments in family and start-up companies, as well as corporate sales and spin-offs, offer the best opportunities over the next two years become.
Changes in private markets
Two-fifths of investors plan to increase their target allocation to private credit and infrastructure over the next year. In private debt markets, two-thirds of LPs expect capital to become more concentrated in larger GPs over the next three to five years. In private equity, fewer LPs expect their average exposure to individual GPs to increase than when we surveyed them five years ago. However, LPs are making room for new managers in their portfolios, with the majority making a commitment to a new private equity manager and more than half of LPs adding new private credit and venture capital managers.
Capital Calls and Venture Capital Down Rounds
Some LPs are cautious regarding the expected amount of funds raised from their GPs over the next two years compared to the last two years, with two-fifths expecting less capital to be raised. Caution also prevails with regard to their venture capital portfolios: three quarters expect more rounds of downs in their portfolios due to falling valuations.
Note to editors
LPs (Limited Partners) are investors in private equity funds or private markets funds. GPs (General Partners) are managers of private equity funds or private market funds. Private equity (PE) is a generic term for capital for venture financing, growth financing and financing of company acquisitions.
Coller Capital’s Global Private Equity Barometer is a unique snapshot of global private equity trends. Twice a year, it provides an overview of the plans and views of institutional investors in this asset class in North America, Europe and Asia Pacific (including the Middle East). It has been published every six months since 2004, in summer and winter.
The latest barometer reflects the views of 110 institutional private equity investors worldwide who were surveyed from February 13 to March 31, 2023. Results are globally representative of all LPs in terms of investor location, type of investing organization, total assets under management and length of private equity investing experience.
About Coller Capital
Founded in 1990, Coller Capital is one of the world’s leading investors in the followingmarket for private asset classes and is recognized as an innovator in complex followingmarket transactions.
The firm provides liquidity solutions to private markets investors worldwide, acquiring investments in private equity, private credit and other private markets investments. With headquarters in London and offices in New York, Hong Kong, Beijing and Seoul, Coller’s multinational investment team has a global reach.
In January 2021, the company placed the fund “Coller International Partners VIII” with capital commitments (including co-investments) in excess of US$9 billion from more than 200 of the world’s leading institutional investors.
In February 2022, the Company placed the Coller Credit Opportunities I fund with $1.45 billion in capital commitments (including co-investments) from more than 40 institutional investors.
In March 2023, Coller Capital announced the creation of a global Private Wealth Secondaries Solutions (PWSS) business to provide high net worth individuals with expanded access to the private capital markets.
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