Limited partners are more likely to turn down general partners’ new funds than in the past, according to a survey of global LPs. Just over 40 percent of respondents — surveyed from February to March — said they are less likely to invest in successor funds. The reasons are myriad. Let’s take a look at the Coller Capital Global Private Equity Barometer results and what they mean for LP-GP relations.

Diversifying relationships would appear to be top of mind. That 41 percent global figure gets even higher if we zoom in on North American investors, of whom nearly half are less likely to re-up with GPs. But limited partners don’t intend to exit private equity as an asset class. In fact, nearly an equal proportion of respondents at 45 percent plan to accelerate the development of new general partner relationships in the next 18 months. 

Why the churn? The chart above shows fund performance is far and away the biggest factor for investors. 

Counterintuitively, the same investors say their net annual returns from private equity are at record levels. LPs tell Coller that 67 percent of their portfolios have returned between 11 to 15 percent since inception, with a further 21 percent reporting gains above 16 percent this year. In aggregate, that’s the highest level of 10+ percent returns since at least as far back as 2009. 

Where 2021 has been less stellar historically is in returns above 16 percent. And this is perhaps indicative of restlessness from limited partners: more investors saw big returns in 2015 and 2009 than this year. As the economy transitions into high gear, LPs may be chasing blockbuster fund performance — and reordering their general partner investment schedules to match.

Investors’ focus on relationships also sticks out in Coller’s note. Amid numerous reports that LPs are clamoring for inclusion in new fundraisings, roughly a third of LPs told Coller that getting insufficient allocation to desired co-investments was a factor in changing their co-investment policies. Remember what investor Sheryl Schwartz told Mergers & Acquisitions at The Best in M&A Speak virtual event in May:  “It’s a very competitive market. It’s hard to get into funds, it’s hard to get good allocations. And even  more importantly, it’s hard to get co-investment opportunities, which a lot of LPs want.”

Respondents were near evenly split between North America at 40 percent and 39 percent of respective survey participants; another 21 percent hailed from Asia Pacific. Most of the 111 investors surveyed manage over $10 billion in assets.