LP returns from PE at "record levels" – Coller Capital

According to the report, two thirds of LPs have achieved overall net returns of between 11% and 15% from private equity, with another fifth of LPs reporting net returns of more than 16% since they started investing in the asset class.

David Jolly, partner at Coller Capital, told Unquote: "A significant aspect of the report is just how positive it is. We're coming out of a global pandemic, there is still a lot of disruption to how LPs go about investing, and potential disruption in their portfolios, but they are feeling positive. Part of that stems from the finding that LPs' lifetime PE portfolio returns are at record levels."

A majority of LPs in North America and Europe think this is a good time to be making new PE commitments, but they also believed that risks to private equity returns have risen substantially in the last 18 months. Three quarters of them fear a worsening of geopolitical strife and trade wars, and over two thirds are worried about changes in the regulatory or tax environment. 

Additionally, two fifths of LPs refused more re-ups than they used to, with the main reason being weak performance from GPs. However, Jolly says that this can be positive for the ecosystem in terms of LPs striking new relationships with new GPs.

The report also found that LPs remained enthusiastic for engaging in the secondaries market and co-investments. Three quarters of LPs said they planned on doing more in the co-investment space, and a similar proportion had invested in the PE secondary market. Over the medium term, Jolly predicts a lot of enthusiasm among LPs for both. 

Changing priorities
Three quarters of all LPs will invest differently in response to issues connected with sustainability and climate change, and a similar proportion will focus on new opportunities in healthcare and biotech, the barometer found. "ESG continued to be a prominent theme, and not just paying lip service to the concept – nearly half of LPs believe that a strong ESG approach is fundamentally beneficial to investment returns," Jolly said.

Meanwhile, AI and robotics businesses, which have previously ranked highly, this year slipped in importance, Jolly said. "There is still plenty of enthusiasm for those assets, but maybe not at the level you'd have seen before." Similarly, he added that although LPs are supportive of tech and software businesses, "a clear majority of LPs are expecting a significant tech market correction in the next 18 months. I don't think that's steering LPs away from tech, but these findings show that they must be conscious of their exposure to the sector."

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• LPs
• Coller Capital