Evening Brief – 08.01.23

Institutional investors are maintaining the status quo when it comes to their levels of private equity commitments over the next six to 12 months despite economic headwinds, new research shows.

While 61% of institutional LPs expect to hold their PE allocations steady in the near term, 18% could even increase their overall commitments, according to the latest Stifel/Eaton Partners LP Pulse Survey.

About 21% are considering reducing their allocation dollars to PE. Survey respondents ranked buyouts and Growth Equity as the top asset classes of focus, at 65% and 39%, respectively, while healthcare was the most favored sector at 80%.

Nearly half of LPs expect similar commitment volumes in 2024 year-over-year for their existing managers back in market with their next fund, with 28% expecting an increase in volumes and 23% anticipating a decrease.

The report added that 57% are taking a “business-as-usual” approach when managing the increased volume of existing managers back in market with their next fund, although half expressed a willingness to consider reducing the number of managers they invest with.

Tightening credit, possible recession, and declining distributions are seen as greatest risks to private equity performance, the survey said.

LPs identified continental Europe (65%), the UK (41%), India (24%), and Southeast Asia (19%) as geographies of possible interest for investment.

“Despite tightening credit and looming fears of a recession, our latest survey suggests that LPs remain cautiously confident in the outlook for private capital markets over the coming year, with many expecting either similar or increased volumes for existing managers in 2024 compared with this year,” noted Eaton Partners managing director Chris Maduri.

The online survey of 44 institutional investors was conducted from June 23, 2023, through July 26, 2023.