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GPs adopting a more optimistic outlook, says new survey

General Partners (GPs) are more optimistic about the outlook for their businesses than they were 12 months ago with economic uncertainty and recessionary fears having less of an impact than previously anticipated, according to a new report.

GPs surveyed for the 2024 Dynamo Frontline Insight Report: Trends, Challenges and Insights from Global General Partners, indicated an apparent reduction in the effects of financial volatility on planning. One year ago, one in three GPs surveyed by private markets software specialists Dynamo Software said economic uncertainty was making forthcoming fundraising activity too difficult to project. This dropped by 11 points in the most recent survey.

GPs also appear to sense a rebalancing of power in the GP-LP dynamic following a recession that never materialised and the potential for fund overperformance in 2024. Compared to 2023 respondents, a significantly larger percentage of 2024 survey participants indicated they will increase their management fees over the next 12 months. Some 20% meanwhile said they expect to raise prices this year, while just 5% planned to do so last year.

Expectations for higher fee income may have influenced how GPs answered other questions related to the cost of doing business. Some 92% of GPs said their tech budget would either increase (50%) or stay the same (42%). Notably, “overall cost” dropped year-over-year from third to fourth place in the ranking of most important factors to consider when implementing new technology. “Creating efficiencies and optimising workflows” retained its position as the most important tech implementation factor in 2024’s survey.

Paradoxically, artificial intelligence and machine learning integration ranked last among GP’s technology priorities.

“The fact that AI ranked lower than expected did not go unnoticed by our technologists,” said Hank Boughner, Dynamo’s CEO. “We believe this may be a reflection of how GPs are thinking about AI overall. In our conversations with asset managers, AI is largely being considered for its impact on portfolio companies, not necessarily on GPs’ own productivity. That day will come, however, as AI’s capabilities come into clearer view.”

Investment strategy also seems to be influenced by less apprehension about the economy. The vast majority of respondents plan to either increase (43%) or maintain (52%) direct investment allocations. What’s more, unconventional bets, such as crypto, appear to be more palatable to GPs this year. Last year, zero respondents said they planned to increase crypto investments; this year, 7% said they would. At the same time, a full 66% of respondents said they plan to remain focused on a single asset class, such as private equity or hedge funds. Just over 25%, on the other hand, expect to diversify to multiple asset classes.

Similarly, a greater number of GPs are considering European opportunities. In 2023, just over 11% of GPs said they were looking to deploy capital primarily in Europe. That number doubled in the new survey, with 22% expecting to put capital to work across the pond. This may change as news of Europe’s H2 2023 recession enters into H1 2024 strategy conversations. Plans for Asian opportunities also went up, from 4% last year to 8% this year.

 

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