Evening Brief – 06.13.23
Most limited partners are bullish on North American and European private equity over the next 18 months, according to the current Coller Capital Barometer.
New York-based secondaries markets focused Coller Capital found that 80% of LPs expect to make their first commitment to a new private equity firm in the next one to two years. More than half of LPs expect to do the same in private credit and venture capital. Coller found that 71% of investors are optimistic about the 2024 vintage.
According to Eric Foran, partner at Coller Capital, most LPs are increasingly utilizing the secondary market to rebalance and obtain liquidity in their private equity portfolios.
“The recent public market volatility has led to some LPs facing the denominator effect and subsequent pressure to reduce their private capital exposure, which they can only do via the secondary market,” he said.
The survey revealed that 87% of LPs believe healthcare and pharmaceuticals will provide appealing investment opportunities over the next two years. Approximately three-quarters of LPs say the same about IT and business services.
Renewables was mentioned as attractive by 69% of those surveyed, compared with 49% for hydrocarbons, and sentiment for the consumer sector was just 21%.
Investors are keeping an open mind about the utility of artificial intelligence in the private equity transaction process, with three-quarters of LPs believing it might be a valuable tool for originating deal flow. Three-fifths of LPs believe it might be valuable in deal evaluation or post-transaction portfolio company involvement.
“Markets have been going through a long, challenging winter, so it’s good to see that investors are upbeat on the outlook for private capital and see signs of spring ahead,” said Jeremy Coller, Coller Capital CIO.
Allocators remain bullish on mid-market and special situation funds. In the secondary market, fewer LPs perceive prospects for GPs in large and mega buyouts. LPs are particularly concerned about the level of debt in takeover agreements, with half believing the present proportion is too high.
Secondaries volume is expected to reach $140 billion by the end of 2023 and over the longer term it should reach $500 billion by 2030, Foran added.