Global investors seek more technology exposure - survey

More than 60% of respondents intend to add more technology-related investments to their current portfolios. “It’s a huge consensus that both LPs and GPs want to get more exposure to technology. They aren’t opportunistic, but they show an attitude towards the current investment opportunity,” said Juan Delgado-Moreira, a managing director at Hamilton Lane. “It’s clearly a technology wave that is here to stay. More GPs that used to be generalists will become more technology-oriented.”

This trend should not be interpreted as growing investor interest in venture capital – one-third of LPs plan on reducing their allocations to this area, primarily due to concerns about risk. The clear preference is for growth and later-stage exposure.

With companies delaying IPOs and raising additional private funding rounds, there are plenty of opportunities to participate. According to Top Tier Capital Partners, last year there were 71 private market financings for tech companies globally at valuations of $1 billion or more, with total proceeds of $36.1 billion. This compares to $9.6 billion across 27 public market deals. In 2013, 22 private market financings raised $4.4 billion, while 38 public transactions contributed $12.3 billion.

“In the Asian context, most of the tech investments are now in a later stage. Start-ups have been consumer-oriented and they can be easily scaled up thanks to high smart phone penetration. Most are fast-growing businesses which aren’t really taking new technology risks. Also, more of these technology deals are done by funds that are classified as growth and buyout funds, so the GPs aren't venture capitalists,” said Delgado-Moreira.

Most of this capital is concentrated on a small number of very large deals. AVCJ Research has records of 12 growth-stage tech transactions of $300 million or more in Asia last year. They contributed $16.8 billion of the $26.3 billion committed to all growth investments in the sector. In 2013, there was only one transaction in this megadeal segment and growth transactions overall amounted to $2.9 billion.

Separately, private credit remains the most attractive asset class for LPs – which is consistent with the findings over the past few years. GPs appear to be responding to this demand, with about one-quarter of PE firms that participated in the survey saying they will do more to develop investment expertise around private credit over the next two years. This compares to 6% in 2016.

Changes in performance-tracking methodology are another significant finding. More than half of LPs said they felt under pressure to manage their portfolios with a view to targeting higher IRR rather than cash distributions. Delgado-Moreira noted that Asia is much like the rest of the world in this regard. While the emphasis was on distributions in 2011-2014, it is now switching to IRR.

“There is liquidity in the system and LPs enjoyed strong years of distributions in 2014, 2015 and 2016. What LPs want to make sure right now is that their IRR isn’t coming down,” he added.

The Hamilton Lane survey covers 39 LPs and 27 GPs, with cumulative assets of $1.8 trillion and $1.1 trillion, respectively. The majority of the LPs – which include public pension plans, insurance companies, endowments, family offices, sovereign wealth funds – are based in the US, Europe, and the Middle East. About 10% are from Asia Pacific.

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• Topics
• LPs
• GPs
• Technology
• Performance
• Credit/Special Situations
• Fundraising
• Asia
• Hamilton Lane