Coller Capital’s latest global private capital barometer confirms the overall tilt towards private credit and other defensive strategies amid the continuing geopolitical and macroeconomic uncertainty, and private equity’s current travails.
The barometer’s survey of around 110 private markets limited partners managing some US$2 trillion in capital found that 45% plan to increase allocation to private credit, up from 37% in December. And 37% plan to raise allocations to secondaries versus 29% six months ago.
These overall trends come along with some interesting insights into the dynamics of the still-evolving private capital market. Mega-funds in particular are apparently running into growing LP resistance despite the efforts of major name brand firms to raise ever larger vehicles.
According to the Coller survey, 71% of respondents see the trend of mega-funds with more than $20 billion making up a larger proportion of total private equity assets under management as a challenge towards LPs meeting their performance expectations. But the fact that 28% still expect to increase their allocation to private equity, down from 34% six months ago, and only 10% plan to reduce allocations, suggests that general partners need not worry too much yet.
Still, the data demonstrates how market sentiment is shifting against developments that were shaping the alternatives space a relatively short while ago.
Additionally, 38% of LPs worldwide, and 64% of those in Asia Pacific, believe that new entity formation will continue to outpace industry player consolidation in private markets over the next three to five years.
The interpretation is that new fund and firm launches will be able to deliver returns by targeting hitherto underserved niche opportunities.
LPs also appear disloyal towards their former GP allegiances. Out of the ten largest GPs by total funds committed in their portfolios, 25% of LPs believe that less than half of these GPs will remain in that group a decade from now. And 8% believe that fewer than one-quarter of these GPs will still be in the favoured top ten.
This kind of sentiment sets the scene for a significant pullback from LP commitments to familiar major groups over the next decade.
Private equity’s key supporters of years past appear to be adjusting their commitments. According to reports in Fortune magazine, both the Harvard and the Yale endowments are selling off tranches of their private equity portfolios at discounts to achieve much-needed liquidity. The Harvard endowment reportedly is almost 40% allocated to private equity.
All in all, private markets could look very different in allocations, asset classes, and leading names in a few years.
