Do you like me? Circle one: YES NO
In one study, the LPs circled “no,” and in another, they circled “yes.” So which is it? Will investors back buyout firms next year or not?
The first was a survey by Coller Capital, which shows investors have lost faith in private equity. According to the study, 79% of LPs will refuse re-ups in 2010 because of fund terms and conditions (vs 57% in the Winter 2008-09 Barometer); 76% will do so because of inadequate GP transparency (vs 39% in 2008-09); and 76% will do so because of perceived conflicts of interest (vs 51% in 2008-09).
Beyond that, the study showed the ways LPs are making it more difficult for private equity firms to gain commitments from them. Two thirds of LPs have also changed the way they manage private equity as a result of the downturn: 60% of these LPs say they have changed their risk appetite and investment criteria; around half have deepened their due diligence prior to committing to a fund; and another half have demanded improved reporting from their GPs. 40% of LPs have also strengthened their in-house teams.
And then there’s the flip side. A survey from asset management outsourcer SEI shows that more than 90 percent of the investors it polled planned to either increase or maintain their allocations to private equity in the coming year. The majority of those polled still see private equity as a viable source for potential return (73 percent) or as source for diversification (69 percent). Sounds a little different.
I guess the takeaway is that an LP’s love is fleeting at best. Overall I suppose both surveys address the biggest thing to happen to LP/GP relations this decade, that being that such a thing now exists. GPs, the LPs are the customers now, and you know the thing about customers… They’re always right.