The Era of Limited Partner Cooperation

Given that the private equity fundraising market has never been more crowded or diverse than it is today, with a record 2,959 funds seeking capital, it’s hardly surprising that many investors feel hard pressed when it comes to sourcing, vetting and investing in the best private equity opportunities. Indeed, the conviction among LPs that cooperation with their peers will be an increasingly important tool for broadening their resources and improving returns emerges as a striking theme in Palico’s two most recent biannual surveys of limited partners and general partners.

LPs that cooperate with their peers

Source: Palico Global Private Compass Fall 2015

Nearly Three-Fourths of Investors Share Information

In Palico’s Fall Global Private Equity Compass, 71 percent of limited partners noted that they already share information with other investors and a further 21 percent said they intend to do so, leaving only 8 percent of investors who see no real value in cooperation. Some nine out of 10 investors cooperate to “seek references on funds under consideration” while nearly two-thirds hope to be referred to new potential investment candidates.

Investing Alliances and Mergers are One Way of Improving Returns

LPs say investing alliances and mergers improve returns

Source: Palico Global Private Compass Summer 2016

Taking the idea of cooperation and information sharing a step further, 57 percent of investors said in Palico’s latest Summer Compass that the resources of limited partners, and hence returns, would improve if more limited partners “joined forces” through investing alliances and mergers. If intentions can be taken as a reliable indicator of future trends – not at all clear given political complications – then the private equity industry should brace for a wave of alliances and mergers among limited partners.

The Bottom Line: LPs Need Broader Discovery Networks

The desire of limited partners to cooperate and even to merge underlines the inadequacy of traditional networks and resources in a private equity industry that’s seen assets under management grow to $4.3 trillion from $30 billion in the past two decades. Once restricted almost exclusively to the U.S., private equity today spans the globe, encompassing a multiplicity of activist, long-term investment strategies rather than just leveraged buyouts and venture capital. By putting limited partners in touch with peers who share the same interests, as well as with fund managers, Palico’s virtual marketplace helps investors maximize their resources.


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