GSAM survey finds LPs ready to increase allocation to alts

Survey suggests many investors made the mistake of pulling back in the downturns of 2001 and 2008 and want to avoid that now.

Goldman Sachs Asset Management has released a survey of investors in private markets, disclosing a surprising level of optimism about investment opportunities.

The statement released with the survey draws from a roundtable on 22 September, and quotes Francis Idehen, partner and US head of alternative multistrategy solutions at GSAM: “Investors do not want to repeat the mistakes many made in 2001 and 2008 by pulling back from alternatives, then struggling to plug the vintage-year holes in their portfolios. Investors want to stay the course, aided by strong active management.”

Nearly two-thirds (64 percent) of the investors surveyed in June and July said they believed conditions had improved from a year before. Of course, investors recognize that if they stay the course, not all of the course will be smooth. Although 77 percent expect a recession in the US within the next two years, only 23 percent said it would begin by the end of 2023. A little more than half (53 percent) believe it will begin in 2024.

Expectations for the eurozone are more pessimistic: 90 percent report expecting a recession within two years; 42 percent say it will begin this year and another 44 percent say it will begin next year.

Though some observers have expressed concern about overallocations, LPs do not see themselves as being overallocated to alternatives. Indeed, 51 percent say they are underallocated in co-investments and 59 percent plan to allocate more to co-investments over the next two to three years (46 percent plan to increase allocations to private credit).

Again, 46 percent see themselves as underallocated in opportunistic or distressed funds; 44 percent in infrastructure. The only area in which a larger number see themselves overallocated is buyouts, and there the margin is close, with 27 percent overallocated and 26 percent underallocated.

The survey also asks how LPs evaluate their managers? The top three considerations cited are: track record, operational expertise and fees/terms. There is something of a gap between what LPs are looking for and what GPs think they are distinctive in offering. The three factors that GPs think most differentiates them in the marketplace are, in order: sector expertise, track record and differentiated sourcing.

Some investors are increasing their alternatives allocations, including New York City Retirement Systems, which can now allocate 35 percent of its assets into private markets, as affiliate title Private Equity International reported in July.

Private equity is “important, and I believe it’s going to grow in importance”, Steven Meier, chief investment officer of NYCRS and deputy comptroller for asset management, told PEI.