Data & Intelligence
2017 Global Limited Partners Survey
Posted On: 04 May 2017
Key findings from the 2017 Global Limited Partners Survey include:
- Despite year-on-year declines in EM PE fundraising and investment activity in 2016, the majority of LP respondents* do not anticipate a drop in the dollar level of their new commitments to EM PE over the next two years. However, 25% of respondents* plan to decrease the proportion of their total PE allocation targeting emerging markets—up from 13% of LPs in the 2016 survey—suggesting that for some institutions, EM PE allocations may not be keeping pace with rising allocations to PE globally.
- More than half of LP respondents expect to form fewer than five new EM PE fund manager relationships in the next three years—in line with a global trend toward capital concentration and relationship consolidation. DFIs expect to form the most relationships, with 84% of respondents expecting to form five or more new relationships and 26% expecting 11 or more. Operational expertise in target sectors is the most important factor for LPs when evaluating new EM PE fund managers, with 61% of survey respondents considering operational expertise as very important.
- Two-thirds of LPs currently seek co-investment opportunities with EM PE funds, and over half expect to increase co-investment activities with EM PE funds over the next two years. While fewer LPs (43%) currently seek direct investment opportunities in EM-based companies, 35% plan to increase their direct, non-intermediated exposure over the next two years.
- India has endured dramatic swings in investor sentiment over the last decade, but the country now ranks as the most attractive emerging market for GP investment over the next 12 months, followed by Southeast Asia and Latin America (excl. Brazil), respectively. India ranked as low as ninth (out of ten) in the survey’s market attractiveness rankings as recently as 2013. Of the 10 EM geographies included in the survey, the highest proportion of respondents (9%) plan to begin investing in Latin America (excl. Brazil) over the two years.
- Following a record year for investments, health care ranks as the most attractive sector in which to build exposure via EM PE for the second consecutive edition of the survey. Consumer goods and services, which accounted for the highest share of disclosed capital invested and deal count in emerging markets in 2016, follows health care in terms of sector attractiveness.
- Currency volatility and the lack of distributions from EM funds top investors’ list of macro and fundamental portfolio concerns, followed by political risk in emerging markets. LPs were most likely to cite the stability of teams and personnel at investee GPs as a concern among institutional issues.
- Despite lingering investor concerns over distributions from EM PE funds, just 14% of respondents expect to sell EM PE fund interests in the secondary market over the next 12 months, while 26% expect to buy secondary EM PE fund interests over the same horizon. Of those who do expect to sell fund positions, 46% indicate that their EM PE fund positions are underperforming and unlikely to recover in the future, while 38% cite a change in investment policy or target allocation to EM PE as a reason for selling.
- EM PE portfolio performance has met or exceeded expectations for 69% of LPs surveyed. Return expectations globally continue to moderate: 43% of LPs expect returns of 16% or greater from 2016-vintage EM PE funds, down from 54% of LPs in last year’s survey. For 2016-vintage developed markets-focused funds, just 17% of LPs expect returns of 16% or greater, compared to 27% the year prior. Respondents continue to expect the highest PE returns globally from funds focused on Emerging Asia and Latin America.
*Excludes institutions with EM-only mandates, including DFIs, EM-focused funds of funds and others legally mandated to invest in emerging markets.
Drew Guff | Managing Director and Founding Partner, Siguler Guff & Company
Dr. Andrew Kuper | Founder and CEO, LeapFrog Investments
Torbjorn Caesar | Senior Partner, Actis
Drew Guff | Managing Director & Founding Partner, Siguler Guff & Company
David Rubenstein | Co-Founder and Managing Director, The Carlyle Group