Most private equity institutional investors (62%) earned between 11% to 15% annual net returns since initially investing in the sector, with only 29% earning more than 16%, compared to 64% in the 2019 survey and 36% in the 2007 survey, according to secondary market manager Coller Capital’s 2024 survey of institutional investors taken in February through April.
“The good news is when you look at the percent of LPs generating 11% plus net returns, it has remained pretty high,” said Eric Foran, partner at Coller in an interview.
However, LPs also expect to see more consolidation among private equity firms.
Sixty-four percent of investors think that some of their private equity GPs will merge or be acquired by another manager in the next two years. The majority, 79%, indicated that private equity manager consolidation will not lead to better outcomes for LPs.
Meanwhile, 48% of investors said they have "zombie funds" in their portfolio. Zombie funds are characterized as a fund that’s been around for a long time and the private equity firm may not be able to raise a new fund, Foran said.
“A GP could be managing several vehicles today where the platform may not have a future,” he said.
And while only 20% of institutional investors would consider investing in semiliquid open-end funds, 57% of investors said that the use of semiliquid funds by GPs will materially alter a manager’s operating model.
“I would probably put those concerns in the category of GPs having to put in processes with vehicles supporting the same strategy but having potentially different capital availability, different durations — how those vehicles are managed from an administrative standpoint alongside each other to make sure the managers’ investment approach is consistent across all strategies they manage,” Foran said.
