Private equity managers have strong expectations for the year ahead, but their investors are not so sure, according to a new survey by fund administrator Augentius.
The firm's poll of over 100 asset allocators and fund managers showed that that the latter group was far more optimistic about private equity investing in 2018. Forty percent of American general partners and 55 percent of Asian managers said they believed the market conditions in 2018 would top 2017 – but only 10 percent of surveyed limited partners agreed.
Instead, half of the allocator respondents predicted this year would be worse compared to last year, while 40 percent expected the market to remain roughly the same. Only 17 percent of American private equity managers said they believed investing conditions would decline, as did 27 percent of Asian general partners.
“GPs and LPs always think differently,” said David Bailey, head of marketing, communications and product development at Augentius, by phone. “They’ve got different objectives in mind.”
[II Deep Dive: Private Equity’s Capital Avalanche]
According to the survey, limited partners viewed investment opportunities and market regulation as the biggest challenges facing the private equity market this year. They also remained concerned about valuations, which had tied with market regulation as the top challenge in last year's survey.
“LPs are looking at investor reporting and how their managers are investing,” Bailey said. “Managers are looking to do deals and get returns for investors. They’re very different animals.”
Of all the general partners surveyed, European managers had the closest outlook to their limited partners. Just 11 percent said they believed 2018 would be a better year for private equity, while 22 percent said they expected conditions would worsen.
“The feeling among UK and European managers is slightly more subdued,” said Ian Kelly, group CEO at Augentius, in a statement.
Kelly added that the contrast in views between managers and investors was “worrying,” suggesting a disconnect between the two groups and a need for stronger communication.