ASANTE MARKET
SURVEY RESULTS
Q4 2016
ASANTE CAPITAL GLOBAL MARKET TOUCHPOINT SURVEY
INVESTORS TURN TO TEAM
COMPOSITION,
ORGANIZATIONAL
STABILITY
In light of the fact that past performance is
no longer an accurate predictor of future
performance, we asked investors which of
the following metrics, if any, they were
relying most heavily upon. Our survey
reveals that team composition and
organizational stability represent the most
important factors to investors, followed by
consistency of performance and remaining
on strategy, as detailed below.
53%
Team Composition /
Organizational Stability
31%
Consistency of
Performance
29%
Strategy
22%
Track Record
BACKGROUND AND OVERVIEW
Asante Capital‘s global investor report surveyed investors from around the world and found interesting
results across LPs strategic focus, how the industry calibrates risk, Brexit sentiment, target returns and
more. As part of this exercise, Asante donated $2,000 for the Asante Africa Foundation, who received a
contribution for each completed survey.
$300 billion+
2,500+
69%
Collective AUM
GP Relationships
Global Coverage
We surveyed investors from a variety of institutions, including endowments, fund of funds, pension funds,
insurance companies, family offices, consultants and foundations.
The majority of investors surveyed are responsible for global coverage. Roughly one third are responsible
for the US. This is not surprising considering that of the investors who completed the survey, over 50% are
based in Europe. In terms of strategies, the majority of respondents (74%) cover private equity and
venture capital, as evidenced in the above chart, followed by private debt, energy, and co-investments.
Nearly a quarter of respondents are responsible for all strategies.
Respondents cover a wide-range of strategies and geographies that we believe provide a balanced, global
view on the myriad of topics covered in the market survey.
IN SEARCH OF UNCORRELATED STRATEGIES
9%
Sector Focus
4%
Past performance is the
most accurate predictor
7%
Other
2%
None of the Above
Nearly 80% of all LPs are actively seeking
uncorrelated strategies in today’s market,
the majority of which have not seen an
increase in the number of such strategies
coming to market.
Now is potentially a great time for
managers who can generate returns that
are uncorrelated with public markets.
Continued on page 2
BREXIT
MAJORITY OF INVESTORS DO NOT
BELIEVE THE UK WILL BE BETTER OFF,
BUT CONTINUE TO INVEST IN SPITE OF
THIS
INVESTORS SEEK EXPOSURE TO LMM & SMALL CAP GPs
LPs turn to smaller end of the market, sector specialists, and uncorrelated strategies
Investors are finding it increasingly difficult to source attractive opportunities in what continues to be an
increasingly competitive market. In Europe and the US alone, there are over 2,000 funds currently in the
market, making it increasingly difficult for managers to differentiate themselves. 1 As previously reported,
20% of managers are tweaking investment strategies in order to stand out from the crowds. This is a
logical approach in light of our findings which indicate that 57% of investors are seeking specialist
managers.
While 70% of LPs believe that the UK will
be worse off or that it will not be better off
outside of the EU, a significant proportion
– over 25% - believe that the UK will be
better off in the long term. Not a single
investor in our survey believes that the UK
will be better off outside the EU in the
near term, which is unsurprising given the
uncertainty in the market that persists
today given the lack of clarity that
remains around Brexit proceedings.
Few Investors Pause for Brexit
In fact, in Europe between January 2015 and November 2016, 20 specialist managers closed on €4.5
billion, compared to 14 specialist managers that closed on €3.9 billion between 2013 and 2014.
Furthermore, a report by Cambridge Associates in 2016 found that sector specialist funds had
consistently outperformed their generalist counterparts between 2001-2010; top quartile sector focused
funds delivered an average net IRR of 23.2%, compared to 17.5% delivered by generalist funds.
1
Source: Preqin, Funds Currently Raising, December 2016. Cambridge Associates, Asante Research
‘SPECIAL SITS’ GPS SHOULD NOT RELY ON THE ‘SPECIAL SITUATIONS’
TERM TO DESCRIBE STRATEGY
Given our experience with wide-ranging interpretations of ‘special situations’ strategies in the market, we
asked investors how they define the term. 65% of investors define special situations as ‘investing based on
particular circumstances surrounding the asset / company rather than the underlying fundamentals of the
security (equity or debt) available.’ 49% define the strategy as ‘investing across the capital structure’ and
There sits
are more
PPMs instructuring’.
the market than
49% also describe special
as ‘complex
ever before. The number of funds in the
market represents a near 100% increase
since 2008. Over the same period, GPs on
the road are targeting more than a 20%
increase in total capital; 2500 managers are
collectively targeting $889 billion, com-
In the face of this negative outlook,
investors on the whole plan to continue
investing in the region, with 78% reporting
that they will not be putting UK based
investments on hold. A small percentage of
13% will be putting investments on hold
for the next 12 months, and a further 7%
plan to put investments on hold for the
next 3 to 6 months. This indicates that the
majority of investors surveyed will not
attempt to predict or time market cycles in
the wake of Brexit, but instead will
continue to deploy capital with
consistency regardless of geo-political
circumstances.
That being said, sentiment continues to
change as more information comes to light
and we expect that re-polling the same
investors in 2017 may generate different
results. A recent opinion poll by the
Bertelsmann Foundation shows that 56%
of Brits now support the EU.
pared to 1304 GPs targeting $705 billion 8
years ago.
Only 5% of investors defined special situations as an investment strategy predominantly focused on capital
preservation. This is interesting given that typically special sits funds target a lower return profile than
private equity buyout funds, due to the fact that they are pursuing less-risky strategies with a focus on
downside protection.
Given the variance in the results, it is clear that special situations is defined broadly by investors and covers
a lot of ground. Depending on their experience with the asset class to date, the term ‘special situations’
will bring different top of mind associations in the LP community and managers with this strategy should
be sensitive to this during the marketing process.
Continued on page 3
EUROPEAN
CREDIT IN THE
MARKET
INVESTORS SEEK NET 0.5x MoC AND 5% IRR PREMIUM FOR
EMERGING MARKETS
LPs chase premium returns, few likely to achieve on broad scale
Investors Return Expectations for Generalist, Mid-Market Strategies Across Regions
Following the global financial crisis, there
has been a surge in covenant lite loans in
the market in Europe. A cov-lite loan is a
‘borrower-friendly’ loan facility that is
without the typical protective covenants
found in more traditional loan offerings,
which include financial maintenance tests
that require the borrower to meet certain
performance standards on a pre-agreed
timeframe. Effectively, it provides less
control to the lender over the activities of
the borrower.
European lenders are being forced to deal
with a resurgence of cov-lite loans in the
region given the significant competition in
the space and hence quantum of credit
available.
Majority of LPs believe that there are more covlite loans in the market today than pre-financial
crisis
As evidenced in the above graph, 68% of investors expect 2.0x & 20% net or higher IRR in the US and 71%
expect the same return profile in Europe. In emerging markets, however, the majority of investors expect
2.5x or 25% net or higher, with nearly an equal split from the balance of LPs expecting between 3.0x & 30%
net or higher and 2.0x and 20% net or higher. In the face of return data, this equates to investors targeting
returns equal only to the top 5% of managers. According to Cambridge Associates Private Equity
Benchmarks from Q2 2016, Net TVPI for top quartile managers between 2005 to 2010 ranges from 1.64-1.88x
in the US and 1.55-1.67x in Developed Europe, while the top 5% range from 2.21-2.87x in the US and 1.81x2.07x in Developed Europe.
We also asked investors what discount on returns they would accept in return for strong downside
protection, with the majority indicating that they would accept a discount of 4-5%. The difficulty of course
rests in being able to effectively price risk and will vary based on each respective LP’s risk appetite.
The majority of investors surveyed believe
that there are more cov-lite loans in the
market today than pre-financial crisis, as
evidenced in the above chart. In fact, 2013
-2015 witnessed cov-lite loan volume
increase to over 50% of all institutional
debt in Europe, from c. 0% in 2008-2011, as
evidenced in the below chart.1
4-5 % Discount
1-3% Discount
0% Discount
6-7% Discount
52%
27%
9%
7%
8-10% Discount
5%
To this end, we explored whether the private equity industry calibrates risk and return effectively when
considering what the requisite return profile should be for each investment. According to our findings, 42%
of investors do not believe that the industry is calibrating risk effectively. With respect to macro risk in the
market, nearly 100% of investors anticipate a significant market downturn to take place in the next 3 years.
Significant Pool of Investors do not Believe PE Industry
Calibrates Risk Effectively
Over 50% of LPs Expect Market Correction in Next 24 Months
Cov-lite Volume
INVESTORS EXPRESS MIXED SENTIMENT ON APPETITE FOR FIRST TIME FUNDS
The recent increase in cov-lite loan
agreements reflects the growing shift in
bargaining power towards corporate
borrowers. 68% of investors correctly
asserted that corporate borrowers have
more power in the market today as
compared to lenders, with 27% responding
that they were not sure.
1
In the face of sky-high dry powder levels in the market and an increasing number of
PPMs being issued, we explored whether investors are turning to first time funds to
generate alpha. We asked LPs whether their propensity to commit to first-time funds
had increased following the global financial crisis, and we found that this was true for
only 30% of LPs, whereas 44% indicated that they were not more likely to commit to
first time funds.
Over 20% of LPs were not sure whether they were more or less likely to commit to first
-time funds post crisis, indicating that it was the exception rather than the norm.
30%
INCREASED
44%
HAS NOT
INCREASED
22%
UNSURE
Source: The Wall Street Journal, ‘’Cov-lite on the Rise as Buyout Borrowers Dictate Terms,’
May 2015, Financier Worldwide, Asante Research, S&P “LCD European Leveraged Buyout
Review Q4 15”, Institutional Investor
This communication is furnished on a strictly confidential basis, for discussion purposes only and may not be relied upon for the purposes of entering into any transaction. Under no circumstances shall this communication be deemed or construed to be an offer
to sell or a solicitation of an offer to purchase or subscribe for an interest in any transaction, nor shall it or the fact o f its distribution, form the basis of, or be relied upon, in connection with any contracts, arrangement or commitment whatsoever. This communication is only being directed to persons who are legally able to receive it in the jurisdiction in which they are situated. In the UK this would include persons who are exempt from the financial promotion restriction in the Financial Services and Markets Act 2000.