LPs favour co-invest, secondaries as allocation appetite warms - survey

The survey found that concerns about overallocation to alternatives appear to be dissipating. LP respondents said they were under-allocated across all strategies apart from buyout.

Co-investment, secondaries, infrastructure, and private credit were cited as the areas most likely to see larger commitments over the next 2-3 years. While 58% of LPs report zero allocation to co-investments, 59% plan to increase allocations. Real estate, buyout, and venture capital were, by some distance, the least popular strategies. Only 11% expect to be more active in buyouts and 15% in VC.

“LPs remain most under-allocated to strategies that offer differentiated access points to private markets, particularly secondaries, opportunistic, and infrastructure allocations,” said Francis Idehen, a partner and head of US alternative multi-strategy solutions at GSAM said Mr. Idehen.

“They have the highest interest in co-investment opportunities, reflecting the rising desires of LPs across the industry to establish deeper relationships with fewer favoured GPs.”

On a net basis, LPs said they were making fewer commitments, writing smaller cheques, and more focused on existing relationships than they were 12 months ago.

The survey, completed by more than 200 LPs and GPs over the course of June and July, found that nearly two-thirds of respondents believe the investment outlook is improving. Their overwhelming concerns remain macro in nature: economic recession – most expect one to hit globally in 2024 – geopolitical conflict, inflation, and interest rates.

Financing costs and inflated valuations are smaller worries, but nearly three-quarters believe private equity assets remain overvalued, compared to 54% for public equities. A majority of respondents said that public fixed income and private credit are fairly valued. Private market transaction values, revenue, and EBITDA margins are expected to have the biggest impact on portfolio valuations over the next year.

“LPs' belief that fixed income and credit offer good value is driving interest in private credit. As traditional debt markets retract and capital costs rise, borrowers of all types increasingly seek out innovative and bespoke financing solutions,” said James Reynolds, a partner and global co-head of private credit investing at GSAM.

Despite slower exits, only 10% of LP respondents are currently selling positions via secondary transactions and more than half said they are unlikely to engage in this activity at all. Approximately 45% are participating in secondaries as fund investors.

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• Topics
• LPs
• Fundraising
• Secondaries
• Buyout
• Venture
• Credit/Special Situations
• Goldman Sachs
• LPs
• private debt
• Co-investment