Limited partner ( LP ) investors are planning to increase private credit and secondaries allocations amid growing macroeconomic uncertainty, reflecting a shift toward more defensive investment strategies, according to a recent report.
Over the next 12 months, almost half ( 45% ) of LPs plan to increase their allocation to private credit, which is up from 37% six months ago, finds Coller Capital’s latest Global Private Capital Barometer report, which captured the views of 110 private capital investors from around the world that oversee a combined US$2 trillion in assets under management.
Meanwhile, more than a third ( 37% ) plan to increase their allocation to secondaries, the report reveals, compared with 29% in December 2024. While 28% expect to increase their allocation to private equity – a decline from 34% in the space of six months – just 10% plan to reduce their allocation here.
Asia-Pacific LPs showed the strongest interest in alternative investments, according to the report, with 67% planning to expand allocations to the asset class overall. Appetite for secondaries saw a marked increase: 64% of LPs in the region intend to ramp up their exposure to the asset class, up from 42% six months ago. Meanwhile, private credit remained attractive for Asia-Pacific investors, with 50% planning to increase investments.
Geopolitical instability and trade tensions, the report notes, have created a more uncertain backdrop for investing. Amid an increasingly complex global landscape, 44% of global LPs report that their institutions have a heightened focus on geopolitical risk as a key factor in portfolio construction.
This is most pronounced among Asia-Pacific investors surveyed, with 64% placing greater emphasis on geopolitical risk. This aligns with the finding that eight in 10 ( 82% ) of Asia-Pacific LPs say geopolitical factors represent a significant risk to returns over the next two to three years.
Investors seek liquidity amid tight exit environment
Secondaries transaction volume hit US$160 billion in 2024, according to Evercore’s FY 2024 Secondary Market Review; and the space, the Coller report notes, is still showing strong signs of growth.
Two-thirds ( 65% ) of LPs believe the volume of private credit GP-led transactions will increase in the next two to three years as more private credit funds approach the mid-to-late stages and sponsors look to provide liquidity.
Among the report’s respondents, North American investors held the strongest expectation of such an increase, with three-quarters ( 74% ) sharing this view, followed by Europe ( 59% ) and Asia-Pacific ( 54% ).
Meanwhile, activity in the private equity secondaries market is strong. More than half ( 54% ) of global LPs and 58% of Asia-Pacific LPs say that they are likely to buy or sell private equity assets in the secondary market in the next two years.
This comes as continuation vehicles, particularly single-asset structures, perform well. Two-thirds of Asia-Pacific LPs ( 66% ) with investments in single-asset continuation vehicles say that they are performing above or in line with expectations. However, 17% of Asia-Pacific investors say it is too early to tell.
Third of LPs expect new manager formation to outpace industry consolidation
More than a third ( 36% ) of LPs say they have seen the number of spin-out firms within their private markets portfolio increase in the last two to three years. Many expect this to continue; more than a third ( 38% ) anticipate that new manager formation will outpace industry consolidation in the coming years, rising to 64% among Asia-Pacific LPs.
This rise in new spin-outs is likely to be driven by high performers from established investment teams deciding to set up their own firms. More than one in four LPs ( 28% ), the report states, believe that general partners ( GPs ) aren’t doing enough to nurture their home-grown talent and retain future stars.
Meanwhile, 71% of investors say that the trend towards mega-funds will represent a challenge in terms of meeting performance expectations.
One-third ( 33% ) of investors believe that less than half of their top 10 largest private capital GPs ( by funds committed ) will still be in the top 10 in a decade’s time, suggesting LP loyalty should not be taken for granted.
Institutional LPs expand evergreen vehicles exposure
More institutional LPs are set to embrace evergreen vehicles, which have traditionally been used by retail and wealth investors looking to access the liquidity and flexibility that they afford.
More than one in five ( 21% ) will maintain or expand their exposure to private equity evergreen funds over the next three years while one in ten ( 10% ) say that they will start to evaluate such vehicles.
At the same time, more than one in five ( 22% ) say they will maintain or expand their exposure to private credit evergreen funds over the next three years. More than one in ten ( 11% ) say that they will start to evaluate such vehicles.
Notably, Asia-Pacific LPs exhibit interest in evergreen funds. Among those surveyed, 42% plan to either start evaluating or investing in evergreen funds focused on private equity, while 58% intend to do the same for those targeting private credit.
Private capital goes to Hollywood
As private equity firms continue to target the wealth market and connect with a wider audience, more than a quarter ( 27% ) of LPs expect to see more firms collaborate with celebrities, sports personalities and influencers in a bid to boost their brand awareness and broaden their public recognition.
This view is more prevalent among North American ( 36% ) and Asia-Pacific ( 35% ) investors, while European LPs ( 17% ) see such strategies as remaining niche.
“New challenges call for new strategies, so as the world continues to confront increased geopolitical and economic uncertainty, it’s no surprise that investors are exploring alternative options to deliver returns,” says Jeremy Coller, Coller Capital’s CIO. “LPs are continuing to increase their interest in private credit and secondaries and making new forays into evergreens.”
Peter Kim, the company’s head of Asia and RMB, adds: “Despite an uncertain geopolitical landscape, Asia-Pacific investors are showing growing conviction in private markets, increasing their allocations to secondaries and private credit. They are also actively exploring emerging opportunities, such as evergreen structures, which reflects their adaptability and long-term optimism in the region.”
