Frontline Insights on Recent GP Survey Findings

As further evidence that the alternatives investing market remains highly dynamic, the recent results from Dynamo’s second annual survey of a global audience of GP investors reflected significant shifts in sentiment from the year prior.

Decidedly more optimistic in 2024, GP investors appeared to move away from economic fears and display a renewed sense of confidence.

To offer their real-world perspective on this year’s results, Dynamo CEO Hank Boughner, Francisco Partners Vice President Anders Mikkelsen, and Blackstone Growth Managing Director Ramzi Ramsey discussed the findings during a recent Dynamo webinar.

What’s Driving GP Optimism?

This newfound confidence stems from several factors, said Boughner. A long period of strong market performance followed by a slowdown in 2022 and 2023 has resulted in a significant buildup of uninvested capital, or “dry powder.” LPs, who are often under-allocated in alternatives, are showing show strong interest in the sector, seeing opportunities to re-enter alternative and private markets.

Mikkelsen of Francisco Partners also confirmed the confluence of positive factors seem to be reshaping attitudes. The macroeconomic environment has improved from 12 months ago, where inflation appears to be slowing, interest rates are stabilizing, and the Federal Reserve has hinted at potential rate cuts later in the year. Combined with strong stock market performance and normalized valuations, there is broader optimism in the investing landscape, and GPs are seeing an attractive time to start fundraising again.

Ramsey noted that deal volumes at Blackstone are the highest he’s seen in 4-5 years.

Trend Toward Diversification

While 66% of GPs remain committed to their core asset class, Dynamo’s survey also identified a growing trend towards diversification. Traditional stocks and bonds may no longer provide the level of protection or growth some investors seek. Diversification across alternatives’ wider range of asset classes can help mitigate risk and potentially enhance returns within an overall portfolio strategy. Survey findings showed private debt (14%), GP stakes (7%), and cryptocurrency are all seeing increased interest.

Boughner noted that companies are staying private longer, and this broadens the investment opportunities inside these companies and gives them more flexibility to pursue opportunities such as private debt. Given data showing the significant decline in publicly-traded companies during the last two decades, Boughner said more companies are evaluating the trade-offs of going public and looking to the lengthen the cycle of staying private longer. This has contributed to a more interesting private market landscape of investing opportunities for GPs.

Overcoming 2024 Alternatives Investing Challenges

Naturally, even among the optimism, challenges always remain. Fundraising, deal activity, and value creation were the top-reported among GPs in 2024. Mikkelsen and Ramsey confirmed this aligned with what they were seeing as well, with Mikkelsen noting that currently, GPs are focused on generating liquidity and returning capital to investors in order to drive an investment cycle that will increase fundraising ability.

According to Ramsey, increased deal volumes across the board are putting more pressure on GPs to differentiate themselves beyond just having the highest valuations. In addition, for many investors, the next most likely deal is already in their CRM systems. GPs with systems that are clunky, unorganized, or lacking insight are more likely to lose out or miss opportunities in today’s active deal environment. Ramsey said modern deal management, CRM, and investor relations are critical tools for effectively capitalizing on data and information, acting efficiently, and communicating effectively with LPs.

How are GPs Thinking About AI?

Ramsey said that while AI is top-of-mind for nearly all investors—particularly when it comes to proliferating landscape of investment opportunities—GPs themselves are still in the early stages of exploring use cases within their operations. This may be behind the reason that AI and machine learning integration were ranked last by GPs among their technology priorities. While many are considering AI’s impact on portfolio companies, the productivity use cases are still emerging.

But, Ramsey noted that in the relatively short amount of time generative AI has been widely available, his team at Blackstone Growth has explored applications with exciting early results. As one example, an investment memo was recreated with 80% accuracy, holding the potential to greatly reduce the man hours required for time-consuming tasks. While he’s not yet comfortable exclusively turning these tasks over to AI at the present time, the pace of innovation could bring transformative tools to ALTs investors in the near future.

Uncover More Valuable Insights

To listen to the full conversation with Dynamo, Francisco Partners, and Blackstone Growth around the 2024 alternatives investment market, access the recorded webinar today.

 

Donna Parent is the Chief Marketing Officer (CMO) at Dynamo Software. Donna is responsible for the corporate brand, demand generation strategies, and go-to-market initiatives for promoting Dynamo’s end-to-end cloud-based platform to the alternatives ecosystem. She is focused on fueling lifelong relationships with consumers, businesses, and strategic partners. Connect with Donna on LinkedIn.