Half of Private Markets Investors Hold “Zombie” Funds — Evening Brief – 06.13.24
Nearly half (48%) of private equity investors have funds they consider to be ‘zombie funds’, where general partners manage existing portfolios due to an inability to attract new funds., according to Coller Capital’s semi-annual Global Private Capital Barometer.
Zombie funds are usually defined as fee-collecting funds that are more than ten years old, still have assets, yet whose managers are unable to attract additional capital.
On that front, 57% of private market investors are uncomfortable with the usage of NAV financing in the private equity industry. However, when used, the preferred application seems to be funding add-on acquisitions.
Furthermore, 64% of investors expect that at least one of the private equity managers they are now involved with will merge or be acquired by another manager within the next two years.
The study also revealed that investor enthusiasm for private markets, particularly private equity, private debt, and secondaries, remains elevated, with a sizable proportion of investors expecting private equity managers’ level of distributions to rise.
One-third (31%) of investors anticipate increasing their target allocation to alternative assets during the next 12 months, while around 60% expect allocations to remain unchanged.
Investors are most likely to increase their target allocation to private credit (45% of investors), with one-third expecting to increase their allocations to infrastructure (33%) and private equity (31%).
In a signal of investors’ desire for further diversification and liquidity, 38% of those surveyed expect to increase their allocation to private markets secondaries.
The anticipated increase in allocation to alternative assets reflects investor expectations for distribution levels, particularly in private equity. Approximately 86% of investors predict private equity managers’ distributions to increase in 2024 compared to 2023.
“These findings are a huge vote of confidence for alternative assets,” said Jeremy Coller, chief investment officer and managing partner of Coller Capital. “LPs stand ready to not just maintain their allocations but to actively increase them as they seek attractive, long-term risk-adjusted returns. Nowhere is that clearer than in private market secondaries, where LPs have seen the diversification and liquidity on offer.”
The 40th edition of the survey captured the views of 110 private capital investors from around the world with a combined $2.1 trillion in assets under management.