Under-Allocation in Private Markets: LPs Rethink Manager Relations
Investors are facing a turning point, as a recent survey by Goldman Sachs Asset Management (GSAM) highlights a significant under-allocation in private markets among Limited Partners (LPs). As fears of a recession diminish, optimism for alternative asset classes is taking center stage, but with a twist—many LPs are reconsidering their manager affiliations.
Under-Allocation Dilemmas
The survey, capturing insights from both limited and general partners, uncovers startling statistics: 45% of LPs find themselves under-allocated to infrastructure, 43% to private credit, and 35% to private equity. These figures point to a widespread recalibration happening amongst institutional investors as they strive to bridge gaps in their investment targets.
Consolidation Over Expansion
Rather than spreading resources across numerous general partners, institutional investors are honing in on fewer, more reliable relationships. According to GSAM, 50% of LPs emphasize fees, track records, and team stability when evaluating partners. This shift suggests a more consolidated approach, potentially offering stability in an increasingly competitive landscape, where 38% of GPs anticipate longer fundraising durations.
Strategic Partnerships over Quantity
GSAM’s Matt Gibson notes a prevailing trend toward fewer but more substantial partnerships. Despite the challenging environment, LPs remain on the lookout for boutique general partners providing unique value propositions and specialized strategies. It’s a dynamic that promises intensified rivalry in the quest for capital but also opens up spaces for innovative general partners to step up.
Liquidity Concerns and Strategic Sales
Liquidity remains a major talking point, particularly as private equity distributions slow. Meanwhile, a majority of GPs are channeling efforts toward strategic sales. With 80% of GPs indicating their intention to utilize strategic sales for liquidity, an astute observation can be made—LPs are positioning themselves for a market poised to shift.
The Future of Private Markets
As GSAM surveyed a diverse mix of 223 limited partners and 35 general partners worldwide, the data reflects a movement toward specialized, targeted investment landscapes. Asset managers, pension funds, and insurers are key players in this narrative, comprising a significant proportion of LP respondents. Interestingly, 32% of LP respondents control assets over $10 billion, translating into a powerful force that influences the market.
Amidst evolving trends and uncertainties, strategic foresight and agility will define the road ahead for LPs and GPs alike. According to Chief Investment Officer, this recalibration is not merely a moment of introspection but a calculated step toward a more refined, efficient private market engagement.
