Moelis Survey Finds Most LPs Are Open to New GP Relationships, Despite Challenging Macro Conditions and an Emphasis on Re-Ups

Moelis & Company (NYSE: MC), a leading global independent investment bank, today announced the results of its 2nd ‘Private Markets Insights’ survey of Limited Partners (LPs) and General Partners (GPs). This edition aims to assess the current private equity (PE) fundraising landscape with an emphasis on Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) initiatives.

The survey takes place in an opaque macroeconomic environment where Moelis found that GPs (67%) and LPs (41%) agree that interest rates pose the greatest threat to private equity performance. Nevertheless only 14% of LPs have shifted their PE investment approach since the fed began raising rates. The survey also found a lack of consensus in LPs’ macro outlook, with 41% of LPs saying the anticipated timing of a US recession is “unclear”.

“Lack of clarity in the macroeconomic environment continues to be an overhang on both LPs and GPs, underscoring the challenges that the PE community faces in putting capital to work,” said Rodney Reid, Managing Director and Head of Private Funds Advisory at Moelis. “While most managers and investors are not looking to overhaul their strategies, the disruptive macro environment has created pockets of opportunity for both LPs and GPs to re-tool, refine and redirect their efforts.”

GPs face a challenging, but not impossible, fundraising environment

The survey found that re-ups remain an important piece of LPs’ planned allocations. Nonetheless, most expect to add new GP relationships and won’t be fully allocated until the second half of 2023:

• 66% of LPs expect to dedicate at least 75% of 2023 allocations to re-ups
• 63% of LPs say they are not planning to cut back new GP relationships
• 61% of LPs anticipate having capital to deploy into the second half of the year

In addition, sector interests have begun to shift:

• Emerging technology (including A.I.) and energy transition are popular themes, with 64% and 54% of LPs, respectively, indicating interest
• More than 20% of LPs indicated an interest in professional sports investing
• Only 12% of LPs indicated an interest in blockchain assets

Spotlight on evolving trends in ESG & DEI

ESG and DEI have been established trends in private equity fundraising for years, but how exactly do they factor into decision-making processes for both LPs and GPs?

The survey found that over 75% of LPs consider ESG in some way during the underwriting process. However, only 26% have strict guidelines on ESG that they are prohibited from violating. Additionally, 69% of LPs claim they do not favor one part of ESG more heavily compared to others during their underwriting process. This could suggest that while LPs believe ESG should be considered in some capacity, there is no consensus on precisely what role it should play in regard to investment decisions.