LPs anticipate PE portfolio restructuring - survey

Half of respondents plan on selling or buying assets via the secondary markets over the next two years – one in five plan both to buy and sell assets – with refocusing resources on top-performing GPs the main motivating factor. Other priorities include increasing liquidity, rebalancing portfolios between different types of private equity, and locking in returns amid a climate of uncertainty.

While disposals are one way to address liquidity issues, securing new credit facilities is another. One-third of LPs expect to take such courses of action. Asia Pacific and European LPs are open to either route, but North American investors are twice as likely to opt for disposals over new credit facilities.

Approximately 40% of respondents anticipate internal reassessments of co-investment policies in response to the changing investment environment. Taking Asia Pacific LPs in isolation, this rises to more than 60%.

No insight was offered into what these changes might involve, but based on the sentiments expressed through the survey, a more conservative approach is implied. For example, two-thirds of LPs think that structural risks posed by pandemics, climate change, and geopolitical tensions should be a bigger consideration in portfolio construction.

Regardless of the macro uncertainties, only one in 10 LPs believe GPs should pause or slow their investment pace until COVID-19 abates. Almost all regard North America as an attractive market right now, and four-fifths expect to achieve annual net returns of more than 11% from their private equity portfolios over the next 3-5 years.

Asia Pacific LPs expect much of this alpha to come through sector specialization. Nearly two-thirds of respondents from the region – versus 45% globally – plan on increasing emphasis on specialization in their PE portfolios. Biotech is the most popular vertical among all investors for venture and growth strategies, with e-commerce and online services like media and entertainment favored for buyouts.

The survey drew on responses from 113 LPs. Nearly all are happy with the level of communication from GPs during the pandemic. At the same time, they expect the nature of their engagement with managers to change, with over 80% saying that their travel schedules will never return to pre-COVID-19 levels. Most believe virtual annual general meetings are here to stay, although as a complement to face-to-face gatherings rather than as a replacement.

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• Topics
• Secondaries
• LPs
• Performance
• GPs
• Asia
• Coller Capital
• Co-investment
• Structured finance