Private Equity Investors’ Attitudes Towards Forming New GP Relationships – November 2013

by Harry Young

  • 12 Nov 2013
  • PE

Research carried out by Preqin at the end of June 2013 for Preqin Investor Outlook: Alternative Assets, H2 2013 found that of the investors looking to remain active in private equity over the next 12 months, 83% will be seeking new GP relationships, or consider doing so in the coming year. Further to this, the study found that over the longer term, 44% of LPs expect to increase the number of GP relationships in their portfolios.

Such a trend may be linked to the movement of certain investors away from fund of funds vehicles, as they gain the experience and expertise necessary to focus more on direct private equity fund commitments. Similarly, a desire to target niche strategies as well as new regions, notably emerging markets, means that LPs are likely to search for new managers that will focus on their preferred investment opportunities, which their existing GPs may not offer. Preqin Investor Outlook: Alternative Assets, H2 2013 suggested that of the investors interviewed, over a fifth (21%) would be looking to increase their exposure to emerging markets over the coming year – a potentially significant influence on the number of new GP relationships sought by investors.

Preqin’s interviews with private equity investors in December 2012 found that over half (52%) of LPs anticipated working with a mix of existing managers in their investment portfolios, as well as GPs they had not previously worked with. In December 2009, however, 55% of investors expected to entirely re-up or primarily re-up with existing fund managers in their planned fund commitments to the asset class. Preqin Investor Outlook: Alternative Assets, H2 2013 found that 17% of investors anticipated their forthcoming fund commitments to be mostly with new GPs, a prominent increase from the previous year, when just 5% of investors expected this to be the case.

Recent examples of LPs forging new relationships with GPs include Los Angeles City Employees’ Retirement System, and its commitment to the eighth venture vehicle raised by Insight Venture Partners. In addition, Teacher Retirement System of Texas formed a new relationship with Silver Lake, making a commitment of $150mn to Silver Lake Partners IV.

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