The Future of Private Equity from the Perspective of Limited Partners

In the financial world, the sky ahead appears to be richly lit for limited partners (LPs) in private equity funds. This optimistic sentiment, collected from a survey conducted prior to the recent favorable U.S. inflation report, foresees a bright 2024 on the horizon.

Delving into the data, the biannual Coller Capital Barometer report reveals that an impressive 71% of LPs predict a robust vintage year for 2024 in both North American and European private equity realms. In contrast, Asian private equity funds raised in 2024 elicit a more tempered response, with just 45% of LPs foreseeing similar prospects.

When it comes to 2023 vintage funds, confidence in the North American (57%) and European (51%) regions remains strong among over half of the 110 surveyed global LPs. Here again, Asia lags, securing the trust of only 37%.

This is not just a matter of numbers; it carries serious implications for the private equity landscape. Over the past year, private equity fund managers have grappled with uncertainty stemming from the fluctuating fundraising environment, largely influenced by the depreciation in public equity values - a phenomenon known as denominator effects.

This turbulence led many to apply the brakes on their investment cadence, preferring to safeguard committed capital in anticipation of a more favorable fundraising climate in 2024. The data from this survey suggests that this cautious strategy may prove to be a judicious gamble.

It's also worth noting that the present moment may offer a golden opportunity for private credit and infrastructure fund managers, as over 40% of LPs express their intention to bolster exposure to these asset classes over the ensuing 12 months.

A closer look at the survey reveals further insights. A sizable 75% of LPs predict an increase in VC down rounds over the coming 12 months compared to the previous year, with North American LPs pushing this figure to a striking 85%.

The "anti-ESG" movement, it seems, is not perceived as a significant disruptor in the world of private equity. Only a meager 23% of LPs anticipate that it will prompt some PE fund managers to relegate ESG, with a scant 4% forecasting a "large number" of fund managers doing so. The overwhelming majority, at 77%, anticipate no impact.

In the sphere of technological advances, the role of artificial intelligence is increasingly salient. Three-quarters of LPs envisage AI contributing to origination in the next five years, while 64% anticipate its involvement in deal assessment, and 61% foresee its application in post-deal portfolio engagement.

To summarize, LPs in private equity funds seem to view the future with a sense of promise, anticipating strong vintage years, increased adoption of innovative technology, and a minimal impact from the "anti-ESG" movement. As ever, the complex dance of finance continues its intriguing performance.

Join us for CEO Works on June 28 where Allison Steitz / Paystand and Lee Shodiss / Santa Cruz County Bank will discuss funding opportunities for startups.