Private equity investors positive on AI, SEC's private funds rules

Artificial intelligence is rarely out of the headlines in any industry and for the investment space its potential is wide reaching, not least in private equity.

AI is gaining ground with limited partners as both a tool to aid their investment decisions and as a key focus for their portfolios according to the newly released Global Private Equity Barometer from Coller Capital, one of the world's leading investors in the secondary market for private assets.

More than half of LPs surveyed say they acknowledge the need to develop in-house AI solutions for optimized decision making and organizational ability. This includes 38% who plan to implement AI for fund monitoring processes and 31% who are focused on competitor benchmarking.

Almost half of LPs also reported interest in venture capital funds specifically targeting AI investments.

“The opportunities offered by generative AI and the challenges of an evolving regulatory landscape have the potential to change the way both LPs and GPs operate in the future,” said Jeremy Coller, chief investment officer of Coller Capital.

Poll participants were also asked about the proposed updates to the SEC’s private funds rules which will include a requirement for advisors to the vehicles to provide quarterly statements to investors regarding fees, expenses, performance, and advisor compensation.

While there is industry opposition to the rules, Coller’s research reveals that LPs believe this new proposed regulation will be helpful in improving transparency and alignment, particularly around the Restricted Activities Rules, such as GP clawback disclosures, which almost 90% of LPs surveyed, supported.

INTEREST IN ALTS

The report also asked the 110 PE investors from around the world overseeing $2.2 trillion AUM about their allocations for the next 12 to 24 months.

Alternatives are key with 90% of respondents planning to maintain or increase allocations, although most are not willing to borrow to fund these investments. LPs are most likely to increase target allocation to private credit (44% of investors) and expected to reduce allocation to hedge funds and real estate.

Optimism is elevated with almost half of LPs saying that higher interest rates have had a positive impact on the performance of their private credit portfolios, whilst three quarters think that private credit managers will lend to private equity at a faster rate than banks over the next one to two years.

Other findings in the report include an expectation of increase co-investment opportunities becoming more frequent and attractive for investors and that Money Multiple and IRR are still the most important performance metrics to investors with just 15% of LPs recognising DPI as the key performance indicator. 

And while three quarters of LPs believe that GPs are currently too optimistic with their returns expectations, but most still expect their private equity portfolio to generate returns of 11% to 15%.

Recently, Jake Elmhirst, head of Coller Capital’s private wealth secondaries solutions, sat down with InvestmentNews anchor Gregg Greenberg to explain the advantages of private equity secondaries and how they fit into the greater private equity ecosystem.