In a recent global survey of 251 LPs, the team at SS&C Intralinks found that not only are most allocators are happy with their private asset performance, but a growing number (34%) are also planning to boost their exposure by more than 10% over the next 12 months.
In a vote of confidence, 92% of investors said they plan to increase or keep their private markets allocations the same over the next year.
“There is an optimism for 2024,” said Meghan McAlpine, senior director, strategy and product marketing for alternative investments at SS&C Intralinks. “Looking at the survey there is capital investors are planning to put to work.”
The majority of investors participating in the survey were family offices, portfolio/asset managers and pension funds. The eighth annual survey, which was completed this past spring and early summer, found that most (77%) of investors saw performance from alternative investments that was in line with or exceeded expectations.
Popularity shifts among alts strategies
Private equity was where the majority of investors (51%) said they had the best risk adjusted returns. Roughly 29% said debt, while 25% said infrastructure, and 19% said real estate had delivered.
Infrastructure was in last place last year, but this year commodities were in that position as hedge funds ranked fifth in satisfaction terms, just behind private asset classes, providing a signal that may feed into future allocation trends, officials said.
Private credit funds will have a bigger role to play in the future, according to the survey findings. The higher rate environment is expected to continue to fuel interest in debt offerings.
PE continuation funds, co-investments on the rise
Going forward the interest in private equity may be waning, the survey indicates. The lowest number of respondents agreed with the statement that “2024 could be a good vintage year for PE.” Officials, however, still expect appetite to remain strong in private equity. The team has witnessed great interest in continuation and secondary offerings and there is also a bucket for emerging managers, McAlpine added.
LPs are looking for industry specialization, which is often an emerging manager’s unique selling proposition, officials said. Technology remains the preferred sector for LPs as well, according to a white paper published earlier this year by the SS&C, “Emerging Managers vs. Re-Ups.”
More than two-thirds of LPs in the more recent survey said they have been offered the chance to invest in a GP-led secondary or remain in a continuation fund over the past 12 months — which is a growing trend as GPs see re-ups and fundraising slowing down.
The survey also found that 69% are concerned about the growth of continuation funds. Experts say the trend signals a shift in the way exits happen as fewer IPOs come to market and PE firms rely on the use of private equity or strategic buyers for realizations in their portfolios.
Valuation tech hacks?
Valuations of private equity portfolio companies are a top concern though for the next 12 months. Nearly 80% of LPs told SS&C Intralinks that banks pulling back from lending on buyouts was a cause for concern.
LPs cited valuation as a greater concern than inflation, geopolitics and potential recession, the survey found. At SS&C, via a recent acquisition of an AI provider call BluePrism, the focus has been on using technology to solve more of LPs challenges in the private asset ecosystem.
“Data Rooms” that are already used by PE firms and sellers may offer an example of enhanced LP/GP transparency and communication in the future. The data rooms are often established by the dealmaker and a seller of the business on Intralinks and offer a way for private equity buyers to do due diligence in a quicker and more effective way.
“We have a unique value proposition to support front office activities,” said Andrew Hoemann, global head Alternative Investments at SS&C Intralinks.
These offerings include providing private equity investment teams with new information gleaned from AI-driven analysis. The thought is that AI-driven technology could help drive more investment by GPs on the platform as valuation techniques improve. It also has implications for investor communications, according to the team.
“Everything is shared in real time,” Hoemann added.
LPs, meanwhile, are looking to simplify and aggregate data on their private equity portfolio. The LP survey highlighted that 53% of investors were dissatisfied with juggling multiple dashboards with multiple logins. InView was launched earlier this year by SS&C as a portfolio management solution for LPs via the Intralinks platform. It collects financial reports across funds from multiple sources.
According to Noreen Crowe, VP of Product Management at SS&C Intralinks, the team is exploring opportunities to broaden the offering to LPs in the near future. Intralinks is heavily focused on being at the forefront of using AI in analyzing large financial documents to improve the decision-making process, Crowe said in a recent interview.
While most GPs and LPs anticipate a slowdown in fundraising over the next year, the activity on the fundraising platform offered by SS&C Intralinks continues to see brisk activity. Officials say the platform accounts for every $1 out of $2 raised in private markets today.
The Intralinks platform currently hosts 515,000 LPs, while 3,000 GPs are using Intralinks. The technology provides a way for investors to complete onboarding documentation with new managers, monitor existing managers and maintain research on potential new investments via a single portal.
The LP survey confirmed what the SS&C Intralinks team instinctively knew already – that fundraising for managers large and small is now taking longer although the level of interest among investors remains high.
Fundraising is starting to last up to 18 months, which is lengthy compared to the commitment activity seen in recent years when some funds were raised in less then six months or over several weeks.
The SS&C team is currently putting money into research development for a new product that will focus on the LP communications process in order to create awareness of offerings among new investors. This could include not only documents but sharing of video updates and the like. The aim is to see GPs create relationships on Intralinks in advance of a fundraise. This ability to augment communications would be part of an overall suite of solutions under SS&C’s FundCentre brand.
A total of 62% of LPs surveyed said they are looking to forge a better relationship with GPs in the coming months, especially in the form of better report analytics. From there the SS&C Intralinks technology platform, which has already logged $35 trillion in financial transactions since 1996, has even more bells and whistles to add in the name of transparency and efficiency.