• Home
  •  
    Regions
    • Europe
    • UK & Ireland
    • DACH
    • Nordic
    • France
    • Southern Europe
    • Benelux
    • CEE
    • Asia
  •  
    Deals
    • Buyouts
    • Venture
    • Exits
    • Refinancings
    • Build-up
    • Turnaround
    • Secondaries
    • Advanced deals search
  •  
    Funds
    • Buyout
    • Venture
    • Mezzanine
    • Debt
    • Funds-of-funds
    • Secondaries
    • Fundraising pipelines
    • Advanced funds search
  •  
    GPs & LPs
    • GP profiles
    • LP profiles
    • GP news
    • LP news
    • Sponsors search
    • LPs search
  •  
    Secondaries
    • Deals
    • Funds
    • News
    • Analysis
  •  
    People
    • People moves
    • Analysis
    • In Profile
    • Q&A
    • Videos
    • Comment
  •  
    Analysis
    • In Profile
    • Fundraising
    • Q&A
    • Comment
    • Videos
    • Podcast
    • Reports
    • Data Snapshots
  •  
    Unquote Data
    • Deals search
    • Exits search
    • Funds search
    • Sponsors search
    • Advisers search
    • LPs search
    • League tables
    • Reports
  • Sign in
  • Sign in
    • You are currently accessing unquote.com via your Enterprise account.

      If you already have an account please use the link below to sign in.

      If you have any problems with your access or would like to request an individual access account please contact our customer service team.

      Phone: +44 (0)203 741 1137

      Email: Georgina.Lawson@acuris.com

      • Sign in
     
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • Twitter
    • LinkedIn
  • Free Trial
  • Subscribe
Unquote
Unquote
  • Home
  • Regions
  • Deals
  • Funds
  • GPs & LPs
  • Secondaries
  • People
  • Analysis
  • Unquote Data
  • You are currently accessing unquote.com via your Enterprise account.

    If you already have an account please use the link below to sign in.

    If you have any problems with your access or would like to request an individual access account please contact our customer service team.

    Phone: +44 (0)203 741 1137

    Email: Georgina.Lawson@acuris.com

    • Sign in
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
Unquote
  • GPs

Record number of LPs to cut "new money" commitments – Rede Partners

  • Harriet Matthews
  • Harriet Matthews
  • 22 June 2022
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  

A record 36% of LPs intend to decrease their “new money” commitments in the coming months, according to research conducted for the H1 2022 Rede Liquidity Index, a survey measuring investor sentiment published by placement agent Rede Partners.

The RLI is based on LPs' liquidity predictions for the year ahead and tracks whether they are expecting to increase, decrease or maintain their private equity commitments. Although the majority of LPs are still expecting to increase their PE commitments, the index dropped from a record high of 70 in H2 2021 to 55 in H1 2022, marking its lowest point over the past five years other than a score of 49 in H1 2020.

Rede Partners said in a statement that this reduced liquidity is driven in part by a drop in LPs’ expectations for distributions following exits in a market where selling businesses is likely to become more challenging. The fundraising market is therefore expected to become more challenging, with greater competition, longer fundraising timelines and more difficulty in increasing fund sizes.

The study surveyed 104 institutional LPs from around the world, including funds-of-funds (33%) and family offices (29%). The results are a gauge of LP sentiment, calculating how this has increased, decreased or remained unchanged in a range of areas.

In addition to calculating the RLI itself, the research asked LPs questions about their current portfolios and allocation plans. With more than a third (36%) of LPs intending to decrease their “new money” commitments in the coming months, GPs and LPs alike might wonder where this market leaves emerging managers.

Gabrielle Joseph, head of due diligence and client development at Rede Partners, told Unquote that emerging managers are indeed facing a tough market. “The bar for emerging managers has been raised and will continue to get even higher,” she said. “But, if there is a true purpose and reason for a new manager to exist, this will resonate, and LPs might churn existing managers to get access to exciting new groups. It will be tricky to get those fundraises completed, and it will be harder and riskier to go out fundraising, so managers will need to work out a strategy to cope. Investors who can partner with them by backing them and warehousing deals, often with interesting terms, means they can really help them through difficult times.”

However, Rede is continuing to support emerging managers in its own work, Joseph said. “While it will be a tougher market for them, you’ll see by our actions that we believe there is a great opportunity here, and we’re currently raising two first time funds,” she said. “We’re always looking to bring the very best of these to the LP world. There is an outsized alpha opportunity with these managers, and they often bring in the most forward-thinking and modern investment practices, helping to drive the asset class forward.”

Re-up constraints
The relatively small portion of LPs looking to make “new money” commitments is also a reflection of the current constraints placed on them by re-up demands. The survey asked LPs what portion of their existing GP relationships who were currently in the market fundraising, with 58% saying more than half were in the market, and almost one third (35%) saying that 50-70% were in the market. Just seven per cent of the LPs surveyed said that more than 70% were fundraising.

Joseph told Unquote that this feedback reflects several fundraising dynamics currently at play. “Our data here was a little surprising due to the weight of industry chatter and speculation on how busy the market is, with lots of anecdotal numbers being thrown around such as 80% of GPs being in the market in 2022,” she said. “However, it still represents a busy year, given that fundraising cycles used to be 3.5 years on average, so you’d expect 30-35% of your GPs in the market each year. And if you add GPs’ fund size scaling ambitions, the re-ups are even higher. The final piece of the puzzle is that a lot of GPs have launched additional products - so for a single GP, your re-up burden might be much larger than it was before.”

GPs such as KKR and Carlyle already manage multiple strategies for specific geographies or sectors. Unquote reported last year on the trend of GPs launching mid-cap “heritage funds” to capture more dealflow and retain entrepreneurially-minded teams. Fundraises including Astorg’s EUR 1.3bn Mid-Cap Fund this year, as well as PAI’s EUR 920m fundraise for its first Middle Market Buyout Fund in 2021, have also exemplified this trend.

Large-cap limits
Overall, 17% of LPs plan to decrease their commitments to PE, according to the survey. However, LPs were also asked to which PE asset classes they did intend to increase their allocations, with the greatest portion (38%) opting for lower mid-market buyout vehicles of more than USD 1bn in size. Mid-market buyouts (37%) and growth equity (27%) were the next top choices, with venture capital chosen by 20% of LPs.

Large buyouts, however, were cited by just 10% of LPs as an asset class to which they intend to increase their exposure in 2022. Rede’s Joseph points out that many large buyout funds have already been in the market this year, with many LPs already putting a lot of their capital to work on the mega-cap fundraises seen in 2022.

However, it is not just capacity constraints that might be driving this, according to Joseph: “There are also two economic changes at work: the increased cost of leverage due to interest rate rises; and a slowdown in the trend of increasing valuations across the whole market over the past couple of years.” Debt considerations are also being taken into account, she said. “There is a feeling that it may be harder to put together financing packages for some large buyouts, and we are hearing that some M&A processes are slowing down. In this environment, it therefore might be harder for larger funds to double and triple the value of these businesses, whereas it is easier to do so in smaller companies.”

As reported, Advent International held a USD 25bn final close for its tenth flagship fund in May 2022. Further so-called mega-cap fundraises are also expected to come this year from GPs including Apollo and Blackstone, according to Unquote Data.

With sector allocation being of particular importance ahead of a downturn, 41% of LPs are expecting to increase their deployment to healthcare-focused funds, while 33% expect to increase their technology allocations. A further 28% plan to increase their allocations to sustainability and impact strategies.

Although healthcare has proved more popular than technology, this is not necessarily an indication of LPs turning away from the latter. “This is first and foremost an indication of the increasing excitement surrounding healthcare,” Joseph said. “The numbers have not changed dramatically on technology, and certain types of tech are still seen as a safe harbour, such as enterprise software with high recurring revenues, and those that aren’t reliant on supply chains or raw materials. When it comes to unprofitable or not yet profitable tech, or consumer-focused tech, there is some concern about overvaluation, and that is affecting a whole cascade of issues from exit to entry. However, there is still a belief that if you get it right in technology, you will do fantastically well.”

Navigating the market
Taking all of these factors into account, Rede would still caution GPs against trying to “time the market cleverly” for their next fundraise, according to Joseph. “It is very uncertain how things will play out and it is not clear when the tightening liquidity we’re seeing will ease up. So even you’re worried fundraising will dry up, we don’t recommend going out now if you are not ready to do so, as LPs will see through this and be unwilling to engage. LPs will not pick up their pen unless they see the fundraising is needed and appropriately timed.”

At the same time, postponing a fundraise is not an option. “It might take longer to raise, and the last thing you want to do is run out of capital,” Joseph said. “So we would advise GPs to go out at the time that makes clear sense – you could wait for a couple of months for some fantastic exits, but don’t wait indefinitely in the hope of a wholesale change in the macro situation.”

GPs will need to vie for attention with clear and attractive propositions to make themselves heard, according to Joseph. “Many LPs are busy, stretched and nervous, and they will not enter due diligence unless they see a clear and compelling story at the first sight of your initial meeting and materials,” she said. “LPs are not going to give you a second chance to address any areas of confusion or to dig deep into the data to uncover that things are more interesting than they seem on the surface. It’s a good idea to speak to LPs or ask a placement agent to speak to the market on your behalf to identify their concerns in advance, so you hit every note exactly on pitch and ensure that the LP will be willing to commit their time to you.”

  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
  • Topics
  • GPs
  • LPs
  • UK / Ireland
  • Fundraising
  • United Kingdom
  • Rede Partners

More on GPs

EU foreign subsidies regulations
EU FSR could impact PE fundraising with potential rise in ‘clean funds’

FSR could lead GPs to create funds without foreign LPs; red tape around sovereign wealth funds likely

  • Regulation
  • 01 September 2023
Jan Cerny of BHM Group
BHM Group builds on PE strategy, eyes European medtech and renewable energy acquisitions

Czech Republic-headquartered family office is targeting DACH and CEE region deals

  • Investments
  • 01 September 2023
Bettina Curtze of Redalpine
Redalpine expands leadership team amid CHF 1bn-plus fundraise

Ex-Rocket Internet leader Bettina Curtze joins Swiss VC firm as partner and CFO

  • Venture
  • 31 August 2023
Canary Wharf and the financial centre of London
IPO offers CVC chance to become multi-asset consolidator

Potential IPO also offers monetisation solution for founders and GP stakes investor Blue Owl

  • GPs
  • 25 August 2023

Latest News

Fund closes in US dollars
  • Funds
Stonehage Fleming raises USD 130m for largest fund to date, eyes 2024 programme

Multi-family office has seen strong appetite, with investor base growing since 2016 to more than 90 family offices, Meiping Yap told Unquote

  • 05 September 2023
Clinical trials and biotechnology
  • Buyouts
Permira to take Ergomed private for GBP 703m

Sponsor deploys Permira VIII to ride new wave of take-privates; Blackstone commits GBP 200m in financing for UK-based CRO

  • 04 September 2023
Public sector software
  • Exits
Partners Group to release IMs for Civica sale in mid-September

Sponsor acquired the public software group in July 2017 via the same-year vintage Partners Group Global Value 2017

  • 04 September 2023
EMEA Public to Private M&A
  • Investments
Change of mind: Sponsors take to de-listing their own assets

EQT and Cinven seen as bellweather for funds to reassess options for listed assets trading underwater

  • 04 September 2023
Back to Top
  • About Unquote
  • Advertise
  • Contacts
  • About Acuris
  • Terms of Use
  • Privacy Policy
  • Group Disclaimer
  • Twitter
  • LinkedIn

© Merger Market

© Mergermarket Limited, 10 Queen Street Place, London EC4R 1BE - Company registration number 03879547

Digital publisher of the year 2010 & 2013

Digital publisher of the year 2010 & 2013