PE Data Snapshot – LPs Maximize Challenged Resources

Investors Look to Maximize Challenged Resources

Investors are increasingly following the lead of “large, well-resourced LPs.” The limited partner section of The Palico Private Equity Compass, a survey of 159 managers and 92 investors, illustrates the degree to which investors find the diversity and opaqueness of private equity challenging. One in three investors describe their resources for finding investment opportunities as lacking while a majority say they are more likely to invest in private equity vehicles that already have commitments from “large, well-resourced limited partners.”

LP View Of Their Resources

LP Resource Classification Graph

Source: Palico

Investors Worry about a Performance Gap with the Largest LPs

Many mid-sized and smaller investors are preoccupied with the possibility of a growing performance gap between themselves and their larger brethren. Big investors are proving increasingly ready to commit unprecedented sums to favored managers in exchange for lower-than-average fees. At the same time they are instituting research-intensive programs designed to identify the most promising emerging managers. The concern is that bigger investors have both greater negotiating power on fees and more significant resources to evaluate and select funds.

The Growing Diversity of Private Equity is a Challenge for All Investors

Yet even the biggest investors are having difficulties keeping track of private equity’s rapidly multiplying specialty managers. In an industry characterized by historically high prices – particularly in traditional buyouts – both investors and managers are turning to less crowded, often more obscure, investment spaces where pricing is better.

Fragmentation Makes it Hard for Managers to Connect with Investors

In Palico’s survey, nearly two-thirds of managers who currently describe themselves as generalists say they “intend to brand themselves more clearly as experts in defined sectors and industries” or “specialize.” In addition to backing that branding with credible resources, managers will need to find better ways to get their message heard in a fragmenting private equity marketplace. Successfully sifting through that increasingly diverse opportunity set is an equally significant challenge for investors.

Palico Helps Investors and Fund Managers Keep Up with PE’s Evolution

To improve their chances of success, investors and managers of all stripes are increasingly teaming up with peers; analyzing how best to expand their existing resources; searching for new means to identify the best opportunities; and looking for new ways to communicate efficiently with potential partners in both traditional and less traditional sectors. Palico’s private equity marketplace helps investors and managers find each other and keep in touch.

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