Earlier this month, Tim Andrews, Stuart Layzell and Robin Silverthorne spent time in the US, attending the LPGP Connect and SuperReturn North America conferences. Read on for their key takeaways from these insightful and well attended events.
Speakers at both conferences didn’t shy away from the challenges facing the industry today, including:
- Lower multiples (dampening exit activity and impacting distributions to investors, which in turn has a knock-on effect on fundraising)
- Difficult fundraising environment (managers now must compete to win a share of LPs capital allocations)
- The higher cost of capital limiting flexibility around investing into their businesses.
The growth of the secondaries market (one panel discussion boldly predicted that eventually all PE investment will be secondary) and the increasing popularity of continuation vehicles have both emerged in response to the challenges surrounding freeing up liquidity for investors. Beyond this, with more companies staying private for longer there’s a growing demand for a wider range of secondary market solutions for both managers and investors.
In a less certain and more competitive fundraising environment there’s also a flight to quality. LPs are backing larger GPs with an established track record and there’s more activity around tried and tested buyout strategies, particularly within the US market. Panellists in one session were of the view that the market will consolidate, leaving only 100 GPs for the majority of fundraising. A view which is further borne out by industry publication PEI’s recent findings that the top 15% of fundraises made up around 40% of capital-raising in total this year.
So, what does all this mean for the industry?
Alongside a back-to-basics approach around value creation through operational improvement, the continued democratisation of the private markets beyond institutions will be key to the future growth of the asset class. The infrastructure to onboard and service investors efficiently and cost-effectively is therefore essential for managers looking to attract capital from this wider pool of investors. Overall, professionalising onboarding and investor relations, to ensure a smooth experience for investors is increasingly an important differentiator in today’s more competitive market.
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