Consolidation among private equity managers foreseen by LPs
64% of LPs believe that at least one of the PE managers they are currently invested with will merge with, or be acquired by, another manager in the next two years. This comes as little surprise considering the flurry of deal activity in recent years, with transactions spanning a diverse set of managers by size, strategy and geographic location.
Whilst anticipated, consolidation is also approached with caution by most
A significant majority, four-fifths of respondents, expressed some scepticism regarding whether consolidation will result in improved outcomes for LPs.
However, a fifth of LPs also recognise the potential opportunities that could arise through strategic consolidation efforts.
The rise in zombie funds that LPs have reported in our latest Barometer is nothing new, we saw this in the wake of the GFC and is to be expected in a post-Covid market.
Robust operational frameworks define leading managers today
An overwhelming majority, nearly 80% of LPs, affirm that the most successful managers today thrive because of repeatable, sustainable processes, complemented by extensive firm-wide networks. This underscores the pivotal role of robust operational frameworks in achieving superior performance.
In contrast, a fifth believe that star deal-makers are still the key feature of top-performing GPs.
‘Zombie funds’ – a feature within most LPs’ portfolios
Three-quarters of LPs have identified ‘zombie funds’ as either currently present in their portfolios or likely to emerge later in the cycle. These findings, which come a few years post the Covid-19 disruption, mirror perspectives observed in the aftermath of the GFC (Winter 2011/12 edition). This underscores the enduring challenges faced by the industry at times of economic distress.
Recent years, marked by inflation and high interest rates, have no doubt had an unfavourable impact on portfolio companies’ growth prospects, which could lead to an increase in ‘zombie funds’.
“Zombie funds” are defined as funds that hold assets past their expected period with limited opportunity of liquidating these assets or raising a successor vehicle.