LPs Are Placing Fund Commitments on Hold and Engaging in Secondary Transactions More Often

A canvass of LP sentiment from Brackendale finds new trends in transaction styles, accommodations for COVID-19, and an affinity for thorough disclosures from general partners.

The Brackendale LP Private Equity Sentiment Survey 2020 revealed a few interesting ideologies and opinions pertinent to limited partners (LPs)’ thoughts on the coronavirus pandemic and their evolving perspective of the alternative investment industry.

Among LP respondents, 92% indicated they are generally satisfied with their fund managers’ transparency efforts during the coronavirus pandemic. This shone a light on the disparity of quality between communicative and non-communicative general partners (GPs), with one response illustrating that there is a “bell curve of transparency and communicativeness, with the best GPs setting a high bar, making the laggards look weak in comparison.”

One of the largest-known effects of COVID-19 is the need for social distancing and, as a result, many LPs have had to conduct due diligence or other important meetings with GPs through videoconferences. According to Brackendale, only 60% of respondents said they believe there is value in these meetings, with 36% of respondents saying there “maybe” is value in them.

About 32% of LPs were forced to put new fund commitments on hold as well, but it was not specified whether this was a result of the need to videoconference.

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Also, as a result of the pandemic, 12% of respondents are digging into new opportunities in their investment policy statements, changing their strategies a bit and entering new asset classes such as special situations, turnaround, distressed, dislocated credit, and private debt. They’re also lessening their allocations to other sectors such as consumer and energy.

The secondaries market may grow as a result of the pandemic as well, since it might make sense for some funds to sell off commitments to meet other needs. In Brackendale’s survey, 71% of LPs reported that they would become more engaged in the private equity secondaries market. On the other hand, 62% said they’re ready to execute fresh commitments to new funds without ever visiting them.