Private capital investors planning to switch managers
Private capital fund managers should not take loyalty from institutional investors for granted, new research has suggested.
The Coller Capital Private Capital Barometer surveyed 110 private capital investors globally, who collectively oversee $2tn (£1.5tn) in assets under management.
The research found that a third of limited partners (LPs) expect that fewer than half of their current top 10 general partners (GPs), by total commitments, will remain in that group a decade from now.
In contrast to common thought that newer managers without a long track record struggle to attract LPs, more than a third (36 per cent) of respondents said they have seen the number of spin-out firms within their private markets portfolio increase in the last two to three years, and many expect this to continue.
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This rise in new spin-outs is likely to be driven by high performers from established investment teams deciding to set up their own firms, Coller Capital said. More than one in four LPs (28 per cent) asserted that GPs are not doing enough to nurture their home-grown talent and retain future stars.
Despite the increasing dominance of mega-funds in the private markets space, an overwhelming 71 per cent of investors said these vehicles will represent a challenge in terms of meeting performance expectations.
This suggests LPs believe returns will be affected as mega-fund managers may struggle to source investments and/or actively manage them, Coller Capital said.
Within private markets, private credit came out on top as the most popular asset class.
More than nine in 10 (91 per cent) of LPs expect to maintain or increase their allocation to private credit over the next 12 months.
Furthermore, the report found that investors have now identified private credit as the strategy where they are most likely to increase their private markets allocation for more than two years running.
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“Private credit remains one of the most attractive and innovative areas in private markets, speaking to its enduring appeal to institutional investors and its flexibility as a financing option for growing businesses around the world,” said Jeremy Coller, chief investment officer and managing partner of Coller Capital.
“Our findings highlight that institutional investors remain on the lookout to expand their investing universe and evaluate strategies which offer strong yields, diversification and resilience. As the credit market continues to mature, secondaries and specialty finance strategies are set to serve this demand.”
The $1.7tn private credit sector has seen stratospheric growth in recent years, as investors diversify away from public markets and benefitted from higher returns.
The industry has expanded from its core direct lending offering into a range of other asset classes.
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When presented with four specific options, more than half of LPs (59 per cent) identified corporate or commercial finance – including equipment leasing, aircraft leasing, and trade finance – as the most compelling opportunity within private credit over the next three to five years. Meanwhile, one fifth of LPs (19per cent) cited infrastructure private credit as the most appealing, compared to 12 per cent for consumer finance, such as vehicle and residential loans, and 10 per cent for commercial real estate.
11 per cent of LPs said they plan to expand of begin investing in distressed debt strategies, suggesting a growing appetite for higher-yielding opportunities.
