Sports investments have grown in popularity, but according to a survey from Coller Capital, 81% of private equity limited partners say the risks are too great to invest in funds focused on sports franchises and leagues.
The biggest risk associated with investing in funds focused on sports, gaming and media rights is high and unproven valuations, according to 87% of the LPs surveyed. Other risks identified included an unproven return track record (85%), the inability to generate growth and unclear valuation plans (72%), that underlying investments might be viewed as “trophy” assets (68%), potential adverse publicity (59%) and a fund’s own internal abilities to assess such funds (55%).
Despite the risks associated, almost 20% of investors surveyed has exposure to sports and related industries or plan to allocate to the sector, with North American firms having a greater appetite for sports investing than their global counterparts. According to Coller Capital, public pension funds and endowments are the types of funds with the most appetite for the sector.
These findings were revealed in Coller Capital’s semiannual “Global Private Capital Barometer,” which tracks the thinking and attitudes of investors in private equity funds.
Coller Capital and research firm Arbor Square Associates surveyed 110 investors around the world who are allocated to private capital funds. These investors represent $1.9 trillion in assets under management. The survey was conducted between September 12 and October 30.
Fundraising
In other findings, most investors are declining to re-up with their existing managers. In the last 12 months, approximately 79% of LPs have declined to reinvest with existing general partners, for a variety of reasons. Of those declining to reinvest, 42% said the decision was performance related, and 29% said it was a result of their institution’s capital availability. Approximately 16% of asset owners chose to not reinvest in existing managers due to a change in their institution’s strategy, while 8% reported not reinvesting due to GP team-related issues, such as turnover. Another 5% said that a change in GP strategy caused them not to re-up.
Over the next 12 months, most investors do not expect to reinvest with their existing managers, with 64% saying they will refuse to reinvest with a small number of their GPs. Approximately 19% said they will refuse to reinvest with a reasonable number of GPs, and 5% say they will not reinvest with most, while 12% said they will re-up with existing managers.
Manager Selection and Experience
LP respondents were split on where to find the most interesting opportunities. When asked what type of funds have originated the most interesting investment propositions, 50% of LPs said they came from new managers, while 50% said the most interesting opportunities came from large, established managers launching new and complementary strategies.
“We discovered that established players and newly formed managers launching new strategies were equally capable of generating interesting fund opportunities,” Coller Capital analysts wrote in summarizing the, noting that new and emerging managers make up a smaller number of the propositions that come across LPs’ desks.
When investing in a debut fund, the most important thing to the poll’s LP respondents was the GP’s track record, with 98% saying it is a factor when investing in a new fund from newly formed GPs. This was followed by the new GP originating from a strong, existing team (72%), a previous connection with the GP (59%), and a more than usually differentiated strategy (56%). The least important factor offered as a possibility in the survey was if the GP has the backing of a significant cornerstone investor; 30% reported this as a factor.
According to the survey, 64% of LPs reported wanting greater transparency about future call and distribution activity from their GPs. Approximately 52% said they want GPs to provide greater transparency about strategic developments at their firms, 51% want transparency around the details of key transactions, 41% want transparency on GPs’ personnel updates and 35% seek more information on GPs’ market views.
Asset Allocation
The asset classes facing the biggest withdrawals appear to be hedge funds and real estate, with 27% and 24% of investors, respectively, saying they expect to decrease their allocations to these asset classes over the next 12 months. But while real estate saw 24% of investors report a plan to increase their allocations, only 8% reported planning to increase their allocations to hedge funds.
Investors said they want to increase their allocations to other alternative investments overall, with 37% expressing this view; only 4% reported planning to decrease their allocations to alternatives. Private credit is also in vogue: 37% of investors said they expect to increase their allocations to this asset class, and 16% plan to decrease theirs.
Investors also reported plans to increase their allocations to private equity and infrastructure, with 34% and 33%, respectively, planning to do so. Only 10% and 6% of investors, respectively, plan to decrease their allocations to these asset classes.
Among investors surveyed, 29% reported plans to increase allocations to PE secondaries, while 11% said they will decrease allocations to secondaries.
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Tags: Alternatives, Coller Capital, Hedge Funds, Infrastructure, Private Credit, Private Equity, Real Estate