31 Mar 2023

Looking beyond these challenging times for US LPs

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Following a week of LP engagement in the USA with BVCA members as part of the BVCA's European Private Capital Conference, Leon de Bono, reflects on what is top of mind for LPs and the outlook for the future.

“I spend a lot of time explaining.” That was the line that has stayed with me from a discussion with the head of private equity from a prominent US pension fund at a reception in New York held by the British Government for the BVCA and its members. It was stop number two on our tour of Boston, New York, Chicago and San Francisco, designed to engage with LPs regarding European private equity and venture capital opportunities.

What he was referring to, of course, was a challenge he is not alone in right now among the North American LP community. His senior stakeholders have all kinds of questions. Why are private capital valuations still high relative to public markets? How do we get our illiquid allocation down so we are not “over-allocated”? Will private capital deliver superior returns in a higher interest rate environment? What is the performance threshold now for re-upping with a manager? His response: to reinforce the value of existing investments and that abruptly changing course of direction is not the answer. Landing those messages is one of his biggest challenges.

From our engagement with LPs it was clear there is a spectrum of decisions being made with regard to allocations to private capital, and during a time at which fixed income is looking attractive for the first time in many years. At its most extreme, LPs are selling their interests at a significant discount to reposition their portfolios. More generally, LPs are pulling back and re-upping with smaller amounts or fewer GPs, or both.

However, judging by this particular conversation in New York, and the abundance of LP engagement with our travelling group of GP members, there is an eagerness to know where future opportunities will lie and to develop new relationships.

Yes, times are challenging now, but when the market turns LPs will want to know the pipeline of future opportunity. And that includes European private equity and venture capital.

 

Leon de Bono
Managing Director, BVCA

 

Photos from the BVCA's European Private Capital Conference New York Reception on 27 March 2023

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