LPs equally open to both established players and new entrants with innovative fund propositions
Eager to find out where some of the most exciting investment opportunities emerged from over the past 12 months, we discovered that established players and newly formed managers launching new strategies were equally capable of generating interesting fund opportunities.
Given that new managers will make up a significantly smaller proportion of funds that will cross LPs’ desks, it is noteworthy that they are the source of 50% of the most interesting propositions, particularly among the North American investor base.
Investors able to commit to debut funds from newly formed managers indicated that the biggest factor behind such a decision would be the presence of one or more individuals with an outstanding investment track record at the firm, with 98% of respondents citing this as a factor. The emergence of a new manager through the spin-out of a robust captive team was also a key consideration, capturing the vote of nearly three‑quarters of respondents.
M&A-based growth – leading value driver within portfolio companies
Among respondents, 41% of LPs surveyed expected M&A-based growth and add-on acquisitions to be the leading driver of value within their GPs’ portfolio companies in the next two to three years.
The majority of investors considered this approach an effective pathway to unlocking future growth, recognising its potential to achieve strategic objectives, scale efficiently, and deliver other key benefits.
Operational improvements, whilst commanding second place overall, was viewed by European LPs as the primary avenue for managers to add value, whilst top of mind for APAC investors was organic growth in revenues.
Digitalisation emerged as the top pick of areas offering the greatest potential for PE firms to bolster their portfolio companies’ performance over the next five years. 73% of LPs believe that technology, along with AI developments, presents the most promising opportunities for driving value creation out of the three options.