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Robert Ientile


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Q&A: Insurer HNA Invests on Palico

Feb 16, 2018 10:41:58 AM / by Robert Ientile posted in Palico Q&A, V2

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Angel Garcia Diez is head of investments at Spanish insurance group HNA. He explains here why HNA invests through Palico’s digital marketplace.

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Secondary Prices for 25 Private Equity Funds

Feb 8, 2018 8:47:28 PM / by Robert Ientile posted in PE Data Snapshot, V2

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A Palico survey of limited partners who’ve successfully purchased stakes in private equity funds on the secondary market over the last six months shows exceptionally strong pricing, with the average sale happening at 99.8 percent of a fund’s most recently reported net asset value. Moreover, 12 out of the 25 funds for which Palico has winning bid data were sold at par or better. These funds generated an average premium of 6.8 percent above NAV. Funds sold at less than par went for an average discount to NAV of 6.5 percent.

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Palico KeyTrends Winter Survey

Feb 1, 2018 11:48:40 AM / by Robert Ientile posted in PE KeyTrends, V2

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Palico

This report highlights answers to survey questions concerning private equity fundraising, performance and secondaries. The questions - an integral part of our monthly KeyTrends press summary and commentary - were sent to limited partner and general partner members of Palico between August 2017 and January 2018. Each of the survey questions generated an average of 72 responses from a broad mix of private equity general partners and limited partners from around the world. The responses highlight continuing enthusiasm (and high expectations!) for private equity investment.

We hope the survey responses, and the brief commentaries accompanying each response, prove useful in your pursuit of private equity investment. Sign up for our KeyTrends newsletter.



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10 Predictions For Private Equity In 2018

Jan 26, 2018 10:18:39 AM / by Robert Ientile posted in PE KeyTrends, V2

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Palico

I’m not the first to say it, but it bears repeating: This is the the golden age of private equity investment. To paraphrase Michael Milken, private equity affords very unusual rates of return thanks in large measure to PE’s flexibility. Indeed, private equity is more a style of investment than anything else. What defines it is a long-term focus and an active effort to shape and improve investments, whether we're talking about a debt-backed corporate buyout, or a custom-designed loan from a private debt fund. These 10 predictions depict a bright future for private equity in 2018 and beyond – though there are shoals that investors and fund managers must avoid.




- Antoine Drean, Founder and Chief Executive of Palico

Private Equity Fundraising Hits a New Record

With some $621 billion raised for private equity funds last year, 2017 finally surpassed the longstanding fundraising record of 2008, when $557 billion was raised across all PE strategies and regions, according to industry estimates. This year should set a new annual fundraising record of $750 billion, based on calculations of rising allocations to PE from existing investors and estimates of fresh capital from new investors.1 A particularly slow upward march of interest rates and private equity’s credible promise of double-digit annual returns is fueling ever-greater investor allocations to PE. Incidentally, this fundraising estimate does not include the tens of billions that Norway’s $1.1 trillion Government Pension Fund Global, the world’s largest sovereign wealth fund and potentially this year’s most significant new PE investor may shortly decide to invest in the asset category.

Larger and Larger Funds are Raised

Private equity fund size records are being quickly achieved only to be quickly broken. Last year saw Apollo close the largest buyout fund ever at $24.7 billion and KKR gather $13.9 billion for the biggest ever North American PE pool. Silver Lake raised $15 billion, briefly an unprecedented sum for a technology-focused vehicle, only to be surpassed by SoftBank’s $98 billion Vision Fund, the largest tech pool and the biggest PE fund ever – four times the size of the Apollo fund. Investors are limiting relationships to make portfolios manageable and doubling down on managers they trust. Whenever they can, they’re also investing more in one go, keeping liquid, low yielding investments to a minimum. In a recent Palico investor survey, 50 percent of investors and managers said that managers would shortly raise a significant number of $30 billion-plus PE funds. Moreover, 56 percent believe that in the next three-to-five years the $98 billion Vision Fund will be surpassed.

‘Alternative PE’ Funds Emerge as a Source of Alpha

In the last six years, average private equity fund size has nearly doubled to $1.3 billion. Yet larger mainstream funds competing against each other are having a tougher time producing the kind of outsize returns for which PE – historically characterized by smaller funds and inefficient markets – is celebrated. There is mounting evidence that sector-focused PE funds and emerging managers, those raising their first or second fund, outperform the typical later-generation mainstream fund. The result is a growing willingness on the part of investors to invest in specialists and emerging managers – what Palico dubs alternative PE – even as overall average fund size gets bigger. A barbell investing style will take firm root in 2018, with limited partners putting large sums to work in big funds, but seeking a bigger bang for their buck by investing smaller sums in alternative PE.

Private Debt Funds Continue Their Rise

In the five years through this past June, the assets managed by private debt funds tripled in size to $475 billion. The funds have offered limited partners low double-digit annual returns with minimal risk during a period of historically subdued interest rates. Global liquidity is now at an unprecedented level – even as benchmark interest rates slowly rise – and the typical annual return of private debt funds is down to the high single-digits. Yet that return is still well above what’s available in credit markets of similar risk profile. This makes the continued growth of private debt funds a virtual certainty in 2018. Looking to 2018 and beyond, when PE managers expand product ranges, it’s more than likely that they’ll do so through a private debt fund. Analysis of creditworthiness neatly complements equity analysis, and extending debt to the same types of companies in which managers invest, keeps PE firms within marketable specialties. Credit provision equally offers insight. In an increasingly competitive market, that edge is often critical for profitable equity investment.

GP Consolidation Picks Up Pace

As forecast in my last private equity outlook, mergers and acquisitions bringing two or more PE managers together – previously rare outside of the funds-of-funds space – took off in 2017. The floodgates were opened by a landmark 2016 deal that saw two highly regarded general partners, L Capital and Catterton merge from positions of strength. M&A among fund managers had until then frequently been seen as a necessity brought on by crisis. Deals done between strong partners last year ranged from the big, Eurazeo’s purchase of Idinvest, to the small, Apax France’s acquisition of small cap specialist EPF Partners. Activity is set to ratchet up significantly again. Midsized and smaller managers now see M&A as a stigma-free means to combat rising marketing and regulatory costs as investors commit more to fewer managers.

More Leverage Means Rising Secondary Value and Volume

Leverage, used to buy stakes in funds that are done fundraising and that have begun investing, is reconciling buyers in private equity’s secondary market – who have traditionally wanted discounts to net asset value – with sellers who only sell funds at par or above. Rarely employed four years ago, leverage, in the form of debt, deferred payments and preferred equity, accounted for an all-time high of 23 percent of record secondary volume of $45 billion in 2017. It also fueled record pricing, with the typical fund purchased on the secondary market selling at 96 percent of its net asset value, surpassing the previous annual high of 94 percent in 2015 and 2014.1 The recent emergence of scores of banks and private funds eager to provide low-risk leverage to buyers of secondary funds should see the levered portion of the market hit a new high in 2018 of 30 percent or more of total value, driving new pricing and volume records.

Restructurings Rise to a Third of Secondaries

Accounting for a record 24 percent of secondary volume in 2017, up from 20 percent the previous year and some 5 percent a decade earlier, fund restructuring – the collective transfer of PE fund ownership from one group of investors to another – is set for further innovation and growth this year. Such deals should rise to a third of volume in 2018, fueled by innovations like ‘strip’ transactions. In strips, exposure to a certain type of asset that some fund investors like but others dislike is reduced or eliminated through a spin-out of the investments into a new vehicle, usually managed by the same general partner. Done right, strips offer all investors a welcome pay out. Bulls double down on the strip assets by investing in the new fund, often alongside new investors, while a new stand-alone fund category is added to the GP’s product range. Meanwhile, the original fund’s bears are reassured as exposure to the controversial assets is reduced. The UK assets of global funds could be ripe for strip deals in 2018, given deeply divided opinion concerning the opportunities and challenges posed by Brexit.

The Transparency of Private Equity Funds Increases

Many speculate that 2018 will see a Trump-inspired roll back of transparency in the core U.S. private equity market. Yet regardless of the fate of Obama-era Dodd Frank regulations concerning PE, or of U.S. Securities and Exchange Commission oversight of the industry, the clarity of PE fund terms and performance will improve both in the U.S. and globally in 2018, driven by demanding institutional investors and, even more importantly, by the strong desire of fund managers to win significant investment from individuals. High net worth individuals and the family offices and registered investment advisers that serve them are currently in the sights of PE managers, while beyond 2018 managers have their focus trained on the mass retail market. The only way to significantly increase the appeal of PE for individuals – apart from sovereign wealth funds, the sole credible replacement for commitments from disappearing discretionary pension vehicles - is through increased transparency.

Private Equity Becomes (More) Comfortable with Digital

Private equity managers and investors are keen to own companies in the tech sector and eager to employ digital innovation to improve performance at portfolio companies. But they have been notoriously slow to adopt new technology for their own operations. This has begun to change and the adoption of technology by both fund managers and investors shows every sign of accelerating in 2018. Last year, a few cutting edge general partners, mainly headquartered in Europe, began using blockchain – the technology behind virtual currencies – to track and quickly share information on transactions, cash flows, contracts and regulatory compliance. In California, some venture capital fund managers are now using artificial intelligence systems to screen investment opportunities. Meanwhile, a summer survey from Coller Capital shows that three out of four of the world’s investors believe they could significantly improve their PE programs through better use of “external data sources,” a catchall category that includes everything from third party software and cloud applications to digital marketplaces like Palico. Growing investment in alternative PE funds, smaller and harder to find than mainstream vehicles (discussed above), should in particular benefit digital marketplaces.

U.S. Tax Changes Improve Private Equity Returns

While there have been some alarmist claims that U.S. tax changes coming into operation this year are negative for private equity returns and for the compensation of fund managers, the opposite is true. Average yearly interest payments at PE portfolio companies in the U.S. are between 32 percent and 42 percent of annual cash flow, not much above the new deductibility cap on interest payments – set at 30 percent of corporate cash flow. In isolation, the deductibility cap would modestly impact PE returns. But any deleterious fallout will be more than offset in 2018 and beyond by the general corporate tax cut from 35 percent to 21 percent – an enormous boon to private equity returns, and by extension to the carried interest compensation of fund managers. The tax reform measure that lengthens the time needed for fund managers to qualify for favorable carried interest tax treatment to three years from one year will also have an impact that pales in comparison to the effect of the corporate tax cut – today only 11 percent of portfolio companies are sold in less than three years.

1 Source: Triago

$227 Million Invested via Palico

In the last year alone, limited partners have invested $227 million, overwhelmingly in smaller and more specialized funds, via Palico’s online private equity fund marketplace. Palico is an increasingly recognized source for off-the-beaten-path fundraisings and secondaries. Its digital marketplace is making private equity an alternative investment category once again, even as the overall industry becomes mainstream.

"No tool other than Palico allows me to as efficiently identify and connect with such a broad universe of private equity general partners."

Grant Kettering, Ridgeleigh Management Company
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Making Private Equity Alternative Again

Jan 19, 2018 9:59:32 AM / by Robert Ientile posted in Palico In Focus, V2

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Palico

In the six years since Palico’s online marketplace for private equity funds was founded, average fund size in the industry has nearly doubled to $1.3 billion. This, along with record amounts of capital available for investment, is a sign of rude health. Yet larger and larger funds competing against each other are likely to have a tougher time producing the kind of outsize returns for which PE, historically characterized by smaller funds and inefficiency, is justly celebrated.

Bringing Hard-to-Find Smaller Funds to Investors

In today’s mature private equity fund industry, smaller vehicles, which frequently operate in less crowded niches, are a valuable source of alpha. The trouble is finding them in a global marketplace where a record 3,129 funds are seeking capital - some 42 percent more than just five years ago. Palico’s digital marketplace brings a rich choice of promising smaller and specialized managers to the desktops of some 1,500 limited partner firms in every region of the world.

Palico’s Listings

Four out of five fund managers raising capital on Palico are seeking $250 million or less, intending to focus on relatively neglected and potentially attractively priced small cap assets; three out of five qualify as emerging managers, i.e. those raising their first or second fund - though most have previous experience at larger funds; two out of five operate in specialist sectors including agriculture, timber, mining, water, shipping and intellectual property; and another two out of five focus on newer regions for private equity investment in Asia, the Middle East, Africa, and Latin America. Listings in Palico’s secondary market are dominated by small secondaries - stakes of $10 million or less in funds that have finished fundraising and are already investing.

$227 Million Invested via Palico

In the last year alone, limited partners have invested $227 million, overwhelmingly in smaller and more specialized funds, via Palico’s online private equity fund marketplace. As Palico becomes associated with these off-the-beaten-path fundraisings and secondaries, it’s making private equity an alternative investment category once again, even as the overall industry becomes mainstream.

"Palico gives us access to investors that we would otherwise have found only with great difficulty, if at all."

Johnny el Hachem, La Compagnie Benjamin de Rothschild
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Palico by the Numbers 2017

Jan 12, 2018 10:04:53 AM / by Robert Ientile posted in PE KeyTrends, V2

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Palico wishes a happy and productive 2018 to all! As we head into the new year, the infographic below illustrates some of Palico’s milestones in 2017.




Today Palico’s global marketplace for private equity fund opportunities (primary and secondary) unites nearly 3,000 accredited limited partners with over 5,000 general partners. Log in to see how digital streamlines fundraising and secondary sales.




All the best from the Palico team!

Palico

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Family Offices & HNWIs Love All Types of PE Funds on Palico

Jan 5, 2018 9:35:12 AM / by Robert Ientile posted in Palico In Focus, V2

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Palico

Out of the nearly 3,000 accredited limited partners seeking primary and secondary private equity fund investments in Palico’s digital marketplace, 19 percent are either from family offices or are high net worth individuals. Their numbers among Palico’s limited partner members are second only to fund-of-funds professionals - roughly 1 out of 4 Palico LP members. If we assume that the overwhelming majority of registered investment advisers (5 percent of Palico LP members) act on behalf of family offices and high net worth individuals, then FO & HNWI representation on Palico exceeds that of funds-of-funds.

In Satisfying FOs & HNWIs, Palico Helps Fundraise for a Wide Variety of GPs

A range of industry statistics indicate that with the exception of sovereign wealth funds (5 percent of Palico’s LP members), family offices & high net worth individuals have been the fastest growing private equity investor group over the last decade, though pension funds (9 percent of Palico’s LP members) still lead the pack. FOs and HNWIs are also among the most entrepreneurial and eclectic of limited partners, investing in a particularly broad range of PE strategies, across all regions and in first-time funds and later generations.

Examples of Eclecticism

That eclecticism is demonstrated by their nichey investment style (see above table). Three out of five family offices & high net worth individuals in Palico’s marketplace are pushing into specialized real asset categories - i.e. investing in infrastructure, real estate and energy & natural resources. By contrast, a less important (but still significant) one third of funds-of-funds seek real assets on Palico. Compared to other LP categories on Palico, FOs & HNWIs also tend to overweight investment in debt and structured equity, turnaround, and in the offbeat category of esoteric assets (this could be anything from investment in patents, to water technology to class action lawsuits).When it comes to the traditional, two out of five FO & HNWI members invest in classic buyout funds, versus three out of five fund-of-funds professionals.

The Advantage of a Digital Marketplace for FOs & HNWIs, and Others

One common problem faced by limited partners is a lack of requisite resources for researching the variety of private equity fund investment choice, whether in the primary or secondary market. Today, a record 3,129 private equity funds, ranging from buyout to credit vehicles, are targeting a high of $1,152 trillion.1 Over the past year alone, the number of fundraisings worldwide has risen 7 percent, while visibility in the private equity secondary market is notoriously opaque. We believe that as PE investment options grow, LPs who neglect digital marketplaces like Palico miss out on the potential to further improve their returns. By bringing investable fundraisings and secondaries to desktops and smart devices - along with a wealth of relevant information - Palico extends the reach of limited partners, general partners and their advisors, making the best opportunities more accessible and affordable.

1Source: The Triago Quarterly, December 2017

"We secured several commitments using Palico and the standout element was the remarkable efficiency of the digital marketplace."

Brett Hickey, Star Mountain Capital
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Funds-of-Funds & Finding Needles in Haystacks

Dec 14, 2017 6:44:41 PM / by Robert Ientile posted in Palico In Focus, V2

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Palico

These days, when funds-of-funds search for ideal fund investments, it can be a bit like searching for a needle in a haystack. Fortunately, many funds-of-funds have gotten very good at finding the best funds - in part because of digital marketplaces like Palico.

The Rough Years

In the years immediately following the financial crisis, many private equity investors dealt with losses by becoming more adept at vetting investments on their own. They also became more cost conscious. As annual private equity fundraising entered post-financial crisis recovery, roughly doubling between 2010 and 2014 to $438 billion, commitments to funds-of-funds bounced between $17 billion and $22 billion annually, beginning and ending the period at the former sum.

The Renaissance

Funds-of-funds had to reinvent themselves to stay relevant and since 2014 they have. The average annual fee (charged in addition to fees levied by funds in their portfolios) has dropped by a fifth to 80 basis points and and annual fundraising rose 53 percent through the end of last year to some $26 billion, according to Preqin. At the same time, funds-of-funds have, in general, shifted away from a focus trained overwhelmingly on bigger, mainstream buyout funds. They are now skilled hunters of smaller and mid-sized funds, many of which are specialists in niche investment areas or non-traditional geographies for private equity.

Getting Back to Finding Needles in Haystacks...and Palico

The shift to harder-to-find small and mid-sized funds has done much to revive the fund-of-fund value proposition. But it’s also made the mission of funds-of-funds more difficult. Adding to the generic challenge of searching for promising smaller and mid-sized funds is a more than 50 percent increase in the number of open fundraisings over the last four years to 3,040 today. Finding the proverbial needle in a haystack is a daunting task. That may explain why 329 fund-of-funds organizations, in their role as limited partners, have joined Palico’s marketplace to search for both primary and secondary fund investment opportunities. Out of 11 investor categories on Palico, ranging from family offices to sovereign wealth funds, funds-of-funds account for the second highest concentration, making up some 16.2 percent of the 2,034 accredited LP firms that are part of the marketplace. Only family offices edge them out at 16.

Helping LPs Find Investments, Palico’s Marketplace Can Improve Returns

By bringing investable fundraisings and secondaries to desktops and smart devices, along with a wealth of information on those opportunities, Palico gives limited partners, general partners and their advisors more time to discover, analyze and invest in highly promising, frequently hard-to-find funds. Palico fits seamlessly with all channels of capital commitment, yet its digital marketplace makes fundraisings and secondaries - covering all strategies and regions - more accessible and affordable.

"With Palico, we stay on top of investment opportunities across the globe and across specialties."

Gonzalo Eguiagaray, Arcano Group
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First-Time Fundraising the Right Way

Dec 8, 2017 9:43:33 AM / by Robert Ientile posted in Private Equity Market, V2

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Palico

Palico estimates that a record 770 first-time private equity funds - the inaugural iterations of their line - are currently seeking capital from investors. That’s a 50 percent increase over the 513 first-time funds seeking capital a year ago and 48 percent more than the previous all-time high of 520 in 2008.

The Favorable Environment for First-Time Fundraising

The mostly newly minted firms behind first-time funds - despite their inexperience as independent managers - are doing well, capturing 8 percent of total fundraising in 2017 - the most since 2011. This renaissance is largely explained by the weakening of top quartile persistence (one study indicates that just 12 percent of top-performing private equity managers now have back-to-back top-quartile funds versus 28 percent prior to 2004) and new evidence that the average first-time fund outperforms the average later-generation vehicle.

Less Reliable Top-Quartile Persistence

A recently concluded study by Massachusetts Institute of Technology economist Antoinette Schoar indicates that only 12 percent of top-performing private equity managers now have back-to-back top-quartile funds, versus 28 percent prior to 2004 and 31 percent before 1999. This helps explain a variety of trends, including the expansion of limited partner staffs, the increasing willingness of LPs to invest in first-time funds, the popularity of investing in less crowded specialty niches, and the growing use of digital tools like Palico’s marketplace - a means of streamlining complex PE fund selection. Put simply, less reliable top-quartile persistence puts a premium on selection skill, increased resources, and digital innovation.

Zeroing-In on the Right Investors is Key for First-Timers

Still, first-time fundraising is no cakewalk. Roughly half of all private equity investors simply won’t consider first-generation funds, since there is no independent track record to assess. This makes it essential for first-time fund managers to zero-in on investors predisposed to investing in maiden vehicles.

First-Time Managers Frequently Find Commitments on Palico

Palico is a particularly effective fundraising channel for first-time funds and a prized marketplace for investors looking to commit to inaugural funds. One-third of the capital raised on Palico since its launch five years ago has gone to first-timers (and slightly more than 50 percent has been raised by first or second generation funds). Over two-fifths of current investable fundraisings on Palico are for first-time vehicles covering buyouts, growth, venture capital, real assets, turnaround, credit and other strategies. In aggregate, these first-time funds are currently targeting $11.3 billion and have raised 13 percent of that sum, or $1.5 billion.

Palico Democratizes Private Equity Investment

Palico is a classic disruptor: it cuts costs and speeds up private equity commitment for all types of limited partners and general partners - small, medium and big, operating on their own or with the help of advisors - anywhere in the world. Today, Palico’s marketplace for investable primary and secondary opportunities unites over 3,000 LPs with over 5,000 GPs. Join them to see how digital streamlines fundraisings and secondaries.

"It’s great to push a button and see everything that’s out there. Palico helps me do my job better."

Sabina Eder, Bank Austria
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Inbox Overflow Changes PE Fund Selection

Nov 30, 2017 6:19:48 PM / by Robert Ientile posted in Private Equity Market, V2

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Palico

Covering potential private equity investments is a time consuming, sometimes painful experience for limited partners. The sponsors of an all-time high of 3,040 private equity fundraisings - a global patchwork focusing on everything from buyouts to credit - are jostling today to stand out, targeting a record $1 trillion from investors.

Limited Partners are Inundated with Fundraising Proposals

One of the biggest private equity investors, Hamilton Lane, is on pace to receive an unprecedented 800-plus private placement memorandums in 2017. It’s the fourth annual record-breaker in a row for fundraising proposals, and not just at Hamilton Lane. All investors it seems, from the smallest to the biggest, face the challenge of how to effectively vet today’s daunting variety of PE investment options.

Less Reliable Top-Quartile Persistence

A recently concluded study by Massachusetts Institute of Technology economist Antoinette Schoar indicates that only 12 percent of top-performing private equity managers now have back-to-back top-quartile funds, versus 28 percent prior to 2004 and 31 percent before 1999. This helps explain a variety of trends, including the expansion of limited partner staffs, the increasing willingness of LPs to invest in first-time funds, the popularity of investing in less crowded specialty niches, and the growing use of digital tools like Palico’s marketplace - a means of streamlining complex PE fund selection. Put simply, less reliable top-quartile persistence puts a premium on selection skill, increased resources, and digital innovation.

LPs Recognize the Need for External Tools

Indeed, the latest investor survey from Coller Capital - a widely followed indicator of investor sentiment - shows that limited partners believe they are failing to keep up with new private equity opportunities. Virtually half of North American LPs, nearly two thirds of European LPs and over two fifths of Asia-Pacific LPs say their organizations aren’t changing fast enough to take full advantage of PE opportunities. And three out of four of the world’s LPs believe they could significantly improve their PE programs through better use of “external data sources,” a catchall category that includes everything from third party software and cloud applications to digital marketplaces like Palico that bring the data rooms of investable primary and secondary opportunities to the desktops and smart devices of LPs.

Helping LPs Find Investments, Palico’s Marketplace Can Improve Returns

Not enough LPs realize just how much third party resources like Palico’s digital marketplace can help them. Among investors in the Coller survey who say they are under-using third party resources, three quarters believe they could improve portfolio management through these tools. Yet only one third share the conviction that they could register higher PE returns. We believe that as PE investment options grow, LPs who neglect digital marketplaces like Palico miss out on some of the best investment opportunities, and thus the potential to further improve their returns. Palico fits seamlessly with all channels of capital commitment, yet it is altering PE with a digital marketplace that makes fundraisings and secondaries - covering all strategies and regions - more accessible and affordable.

"We secured several commitments using Palico and the standout element was the remarkable efficiency of the digital marketplace."

Brett Hickey, Star Mountain Capital
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