Funds Feeling the Heat from LPs in ‘11

We’d like those distributions, thank you very much. But we’d also like to hear from fewer of you.

That pretty much sums up LPs’ feelings toward private equity firms lately. The winter 2011 edition of Coller Capital‘s Global Private Equity Barometer, based on a survey of LPs, indicates confidence is growing that returns will improve. One-third of respondents said they’re expecting double-digit percentage returns.

However, more LPs, rejecting re-ups, are looking to take their capital to new talent this year. A whopping 81% of Coller’s respondents said that they—many, consistent with existing mandates to seek out new GP relationships—will explore new firms and that they expect to buy into funds with which they have not before invested. And 60% of respondents said this year they’ll speed up their rate of commitments to funds.

Coller Capital, which invests in the secondary market, culled responses from 120 private equity investors internationally for its biannual survey.

Among other findings, investors increasingly spurned European PE firms’ overtures for re-ups in 2010. That’s something that Jonathan Gutstein, a partner with Coller Capital, says could stem from ongoing and unclear issues surrounding sovereign debt issues.

Investors are also now reluctant to keep pushing capital into Asia. Two-thirds of respondents said the appetite that investors have for the space is creating easy opportunities for inexperienced GPs raising capital. Gutstein was diplomatic about the issue, saying, “There is a perception of a number of growth opportunities in the region” offset by “a very broad range of GP experience”

Small and middle market PE firms have perhaps the most reason to be optimistic, according to the survey. The majority of respondents said they feel the best areas for investment will be in buyout funds of less than $1 billion in size in North America and Europe.

But at the end of the day, what LPs are really looking to get answered is, ‘What have you done for me lately?’ Two-thirds of respondents said they expect a “significant” increase in distributions from their portfolios this year.

“There’s a great deal of focus on strategy,” Gutstein told peHUB, since LPs see that “as a key driver of returns.”