Investor sentiment towards alternative assets remains positive as an increase in allocations is expected
- Coller Capital data shows that investor appetite for private markets – particularly private equity, private debt and secondaries – remains strong
- A significant number of investors expect the level of distributions from private equity managers to increase
- Investors raise questions about the use of NAV financing and predict further industry consolidation
- Star dealmakers fall out of favour compared to robust, sustainable firm-wide processes
London June, 2024 – Investors (Limited Partners or LPs) expect to increase their allocations to alternative assets over the next year, according to the semi-annual Global Private Capital Barometer.
This 40th edition of the Coller Capital Private Capital Barometer captured the views of 110 private capital investors from around the world. In total, the investors surveyed oversee a combined $2.1 trillion in assets under management.
One in three (31%) investors surveyed expect that they will increase their target allocation to alternative assets in the next 12 months, while three in five (59%) expect allocations to remain the same. 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 say that they expect to increase their allocation to private markets secondaries.
The expected increase in allocation to alternative assets reflects investor optimism about distribution levels, notably in private equity. 86% of investors say that they expect to receive an increase in distributions from private equity managers in 2024 compared with 2023. This rises to 95% and 91% for investors in Asia-Pacific and North America respectively, compared to 77% for those in Europe.
The findings build on a strong track record for the private equity asset class as a whole in recent years; 62% of investors say that their private equity portfolio has generated annual net returns of 11 – 15% since they began investing. Almost a third (29%) say that their private equity portfolios have delivered annual net returns of over 16%.
Jeremy Coller, Chief Investment Officer and Managing Partner of Coller Capital, commented: “These findings are a huge vote of confidence for alternative assets. 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.
“Twenty years on from when we launched the Global Private Capital Barometer, it is widely recognised as a high-quality research snapshot, providing a window into the priorities of the global investor community. We are proud that it continues to deliver such unique and compelling insights from investors into the world of private capital investing.”
Further themes highlighted in this edition of the Barometer include:
NAV finance used as a liquidity tool raises questions
Investors have mixed views on the increased use of NAV finance in the private equity industry but appear to recognise that it is here to stay. While 57% of investors say that they are not comfortable with it, 48% believe General Partners (GPs) are likely to use NAV financing in the next 12-18 months.
Investors anticipate more industry consolidation
There has been an industry trend of consolidation since 2021, and investors expect this to continue. 64% of the investors surveyed believe that at least one of the private equity managers they are currently invested with will merge with or be acquired by another manager during the next two years. In Europe, almost three-quarters (73%) of investors expect to see this further consolidation, as compared to 59% in North America and 55% in Asia-Pacific.
Resilient investor appetite for private credit and infrastructure
According to the Barometer, 93% of investors plan to maintain or increase their target allocation to private credit in the next twelve months, while 95% plan to do the same for infrastructure.
In private credit, the majority (70%) see senior direct lending as a more attractive investment opportunity when compared to other forms of credit investment such as mezzanine lending (58%) and syndicated loans (36%). When investing in private infrastructure, 31% of investors say they favour equity-based returns, as compared to 19% who favour yield-based returns. 50% say that their focus is evenly balanced between the two.
The decline of the star dealmaker?
The latest Coller Capital Private Capital Barometer also examined LP perceptions of star dealmakers and their relative importance in generating GP performance. Almost four fifths (78%) said that repeatable, sustainable processes and firm-wide networks mark out the best-performing investment GPs, while only one in five (22%) said that star dealmakers are the key feature of the best performing managers.
The rise of the ‘zombie fund’
Almost half (48%) of investors surveyed have funds they regard as ‘zombie funds’ (where GPs are managing out existing portfolios due to an inability to raise new funds) within their private equity portfolio. Of the 52% that don’t currently have exposure to zombie funds, more than half (54%) think zombie funds will become a feature in their portfolio later in the cycle.
The Coller Capital Private Capital Barometer surveyed investors on a range of topics, including their attitude towards evolving market trends, their perception of the industry’s overall growth, and their appetite for investment in different private markets asset classes.
