Kohler Capital Barometer: LP Is Cautious About Real Estate Investment, Optimistic About GP Led Secondary Trading Projects

The barometer, which dates back to 2004, is a bi annual summary of investment plans and opinions of private equity institutional investors in North America, Europe and the Asia Pacific (including the Middle East).

In December this year, the latest issue of Kohler capital's "global private equity barometer" (the "barometer") arrived on schedule.

It is worth noting that, despite the sudden outbreak of the epidemic, almost all (96%) of the LPS interviewed in this period were satisfied or very satisfied with the communication arrangement of GP.

Compared with the barometer survey conducted after the global financial crisis in 2008, up to 60% of investors were not satisfied at that time.

"On the one hand, few people knew what was going on during the financial crisis, and GP did not know how to communicate with LP. On the other hand, the communication mechanism between GP and LP is still in the process of establishment, and the mode of cooperation between the two sides is still under exploration. " Yang Zhan, head of Kohler capital investment, said in an interview with 21st century economic report that after more than ten years of practice, GP has made great progress in the attitude, channels, ways and methods of communicating with LP.

LP configuration strategy adjustment

This year's survey is in the period of the new crown epidemic. According to the survey results, investors are still keen on private equity and alternative asset investment, but the asset allocation and investment strategy have inevitably been adjusted.

Among these adjustments, the reduction of real estate investment allocation is more obvious. The others include the attention to joint investment strategy and specific industries.

Since the outbreak of the epidemic, the intention of LP to invest in real estate has decreased significantly: in the same period of last year, the number of LP planning to increase real estate investment was one fourth more than that of reducing the relevant asset allocation; by comparison, the investors who planned to reduce real estate investment this year were almost the same as the planned increase.

Many investors said they would rethink co Investment: more than 40% of LPS said they might reassess their co investment policies based on changes in the investment environment.

More and more investors are focusing on specific industries: nearly half (45%) of LPS said their private equity portfolio would be more focused on individual industries in the future. This trend is particularly evident in the Asia Pacific LP.

Yang Zhan observed that the epidemic did not change the focus of investors in the short and medium term, and even accelerated the development of some popular industries.

"The health care and TMT industry has always been a hot spot for funds." For example, he said that the remote collaboration of TMT sector, Internet retail, biopharmaceuticals and medical and health services in the field of health care all received more capital attention during the epidemic period.

Private equity secondary market expected to rise

In terms of private equity secondary market business, most of the Asia Pacific Limited partners (91%) welcome the secondary trading projects led by GP, and believe that it will help to increase the choice of LP and GP in private equity, a low liquidity asset class.

More than half of the private equity investors said that they would enter the private secondary market as buyers, sellers or dual identities in the next two years.

Investors mainly seek to re centralize resources to the best GP management and restructure their portfolios according to the post epidemic investment environment. One third of LPS face liquidity gap and plan to fill the gap through new credit financing and asset disposal.

"The private equity secondary market played a key role during and after the 2008 financial crisis and is still evolving," said Jeremy coller, chief investment officer at Kohler capital. If the transaction structure designed by the GP to provide liquidity is in the interests of both the seller and the buyer, all participants in the asset class will benefit from it, and the LP will naturally welcome such a project. "

LP pays more attention to structural risk

From the perspective of investors' risk preference, two-thirds of LP think that after the epidemic, private investors will pay more attention to structural risks such as epidemic disease, climate change and geopolitics when allocating assets and establishing portfolio.

Yang Zhan analyzed that in the past, investors also considered the possibility of structural risks in their investment decisions, but due to the low probability of occurrence, it was inevitable that they did not pay enough attention to it.

"The epidemic is a wake-up call. Some incidents may occur." He believes that if the investment decision is not prepared, when problems arise, an investment may even "return to zero" in extreme cases.

Happily, although the final impact of the epidemic on the market is not yet clear, the vast majority of LPS believe that the opportunities for private equity investment by GP are far greater than the risks, and only one tenth of them believe that GP should suspend or slow down the pace of investment until the epidemic is over.

LP also believes that all regions of the world are at the right time for investment. In the Asia Pacific region, 83% of investors think it is a more attractive or very attractive market.