Private market investors are maintaining their commitment to the asset class despite growing geopolitical uncertainty, although many are becoming more selective about the managers they back.
The 44th edition of the Coller Capital Global Private Capital Barometer found geopolitical developments are playing a larger role in allocation decisions, particularly among investors outside North America, while limited partners (LPs) are increasingly scrutinising their general partner (GP) relationships.
The survey of 108 LPs worldwide, which collectively oversee more than $2 trillion in assets, found 37 per cent said the geopolitical environment was influencing their private markets allocation decisions more than in the past.
That figure rose to 46 per cent among European investors and 47 per cent among Asia-Pacific investors.
At the same time, LPs are becoming more selective in how they deploy capital. Nearly a quarter (23 per cent) expect to reduce the number of GP relationships across their private markets portfolios over the next three years, up from 16 per cent when Coller Capital last asked the question in 2020.
Despite this increasing selectivity, appetite for private markets remains resilient with one-third of LPs expect to accelerate their pace of commitments over the next two years, while 57 per cent expect commitment levels to remain unchanged.
Jeremy Coller, chief investment officer and managing partner of Coller Capital, said investors increasingly viewed secondary markets as a permanent feature of private capital investing rather than simply a response to difficult exit conditions.
“Recent high-profile public market moves have put the exit window back at the centre of the conversation. That is encouraging, but it would be wrong to see IPOs and secondaries as competing routes to liquidity. The Barometer makes it clear that they are complementary,” Coller said.
“Secondaries have become a core route to liquidity and a central part of how LPs allocate, rebalance portfolios and retain exposure to assets they continue to have conviction in. Two-fifths of LPs in this Barometer expect continuation vehicle activity to keep growing even as traditional exits recover, which tells you something about how structural this shift to secondaries has become.”
Views on liquidity and exit timing remain divided: 40 per cent of LPs believe GPs are generally achieving the right balance between providing liquidity and allowing companies time to create value but 39 per cent believe managers are not providing liquidity early enough. A further 22 per cent said some of the best companies were being sold too soon.
Continuation vehicles appear set to remain a significant part of the private markets landscape even if traditional exit conditions improve. Forty per cent of LPs expect new continuation vehicle activity to continue increasing, while 29 per cent expect activity to remain at current levels.
Investors are also preparing for a rise in so-called zombie funds. More than half (54 per cent) expect the number of underperforming or stalled private equity funds in their portfolios to increase over the next two years, while 31 per cent expect numbers to remain stable.
Rather than pursuing aggressive remedies, most LPs favour economic adjustments. A management fee reduction was the preferred response among 54 per cent of respondents, while 18 per cent supported resetting manager incentives to encourage exits.
The survey suggests private credit remains attractive, although enthusiasm for increasing allocations has moderated.
The proportion of investors planning to increase their target allocation to private debt or credit over the next 12 months fell to 29 per cent from 42 per cent in the previous Barometer.
However, investors expect private credit secondaries to become a major growth area. More than a third (36 per cent) identified private credit as the asset class likely to experience the strongest proportional growth within the secondary market over the next three years, ahead of private equity, infrastructure and venture capital.
Artificial intelligence is also expected to reshape the industry, though LPs largely see it as a tool for operational efficiency rather than a direct driver of investment returns.
Seventy per cent expect GPs to use AI primarily to reduce costs and improve efficiency over the next five years, compared with 22 per cent who view it as a source of return outperformance.
Even so, 67 per cent believe AI adoption will widen the performance gap between leading and lagging managers, highlighting the growing importance of manager selection in private markets.
The Barometer also found growing support for evergreen fund structures, with 73 per cent of respondents expecting the proportion of private markets assets held in evergreen vehicles to increase by 2035.
By contrast, tokenised funds remain a niche proposition, with 85 per cent of LPs saying they do not expect their institution to access private market investments through tokenised vehicles.
