Insights from the Coller Capital Global Private Equity Barometer

While the private equity industry is continuing to grow, its shape is starting to become fixed, according to Coller Capital’s latest Global Private Equity Barometer, which has been gauging Limited Partners’ plans twice-yearly since 2004.

2017 set new records in terms of funds raised for private equity, but the Barometer suggests that certain structural rigidities are becoming apparent in the way the LP community approaches private equity – particularly in relation to direct investments.

Between 2006 and 2012 the proportion of LPs making investments directly into private companies nearly doubled. However, the proportion has not changed materially since then, remaining at about a third of LPs worldwide. This suggests a limit on the number of private equity investors with the freedom or appetite to make the kind of investment in specialist expertise necessary for direct investing.

Co-investing, by contrast, is an increasingly popular strategy. The proportion of LP co-investors has continued to grow – more than doubling over the last decade.

Canadian pension plans – Ontario Teachers, CPPIB, and Caisse de Dépôt et Placement du Québec, and others – have been pioneers in both these areas, dedicating significant proportions of their private equity allocations to direct investment and co-investment programs, according to data from Preqin.

The Barometer also points to a change in the number of managers LPs want in their private equity programs. In the winter of 2012 – 13, the Barometer reported just 21% of North American LPs planning to increase their number of GP relationships, and 47% looking to reduce it.

By contrast, Coller’s current Barometer shows 40% of investors (large and small alike) looking to increase their number of GP relationships, and just 21% of managers looking to reduce it. Limited Partners are also planning to increase the size of their commitments to managers, with 50% of LPs planning to increase their average size of private equity commitment over the next 3 years.

One factor in investors’ decision to add to their GP rosters may be the growing preference for single-product specialists.

LPs certainly see the merits of multi-product platforms; private equity’s ​‘mega-brands’ enable investors to put large sums of money to work, while offering the promise of stable returns, and perhaps lower fees overall. Despite this, the Barometer shows that the majority of LPs favor single-product specialists, and intend to skew their portfolios further in this direction in the future. Indeed, the preference for single-product specialists is strongest among North American investors, two thirds of whom prefer this approach.

Click here to register for Coller Capital’s Global Private Equity Barometer distribution list.

Contributed By: Paul Lanna, Partner, Coller Capital

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