LPs’ Interest in Distress & Private Credit Rising

By David G. Barry


Limited Partners are certainly thinking differently about private markets than they were a year ago.

That’s the takeaway from a survey of more than 100 LPs during the first half of the year by Rede Partners, a private equity fundraising advisory firm. European LPs accounted for 43% of the respondents.

Facing inflation, supply chain issues and a possible recession, LPs are showing a far greater interest in distressed/turnaround strategies and private credit than they did during the second half of 2021 while showing far less interest in growth equity.

Asked which asset classes they planned to increase allocations to in 2022, the LPs surveyed identified lower midmarket buyouts, midmarket buyouts and growth equity as their top three choices. However, all those sectors declined from the prior period, led by growth equity, which fell by 20%.

On the flip side, distressed rose 15% to 20% and private credit rose 8%, also to 20%.

Other findings from the ninth edition of the Rede Liquidity Index include:

·         That many LPs are reducing the capital they are planning to commit to managers with whom they don’t currently have a relationship. The survey said 36% of LPs fell into that category.

·         That more than 50% of LPs surveyed expected a decrease in the volume of distributions they’ll receive from managers over the next 12 months.

·         That healthcare is more attractive to institutional investors than technology. According to the survey, 41% said they plan to expand deployment to healthcare funds as opposed to 33% for tech.

·         North America is the region for which LPs have the greatest appetite. Meanwhile, they indicated they are pulling back from Asia and other emerging markets.