5 Limited Partner Trends to Watch in 2023

By: Paymun Saket

Managing Director - LP Products
December 19, 2022
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2023 was an interesting year for investing – falling public markets, cryptocurrency volatility, and interest rates higher than we’ve seen since pre-2008. It’s safe to say that limited partners have many factors to consider from many different angles as they define their strategies for a new year and, in many ways, a very different landscape. 

Here are Allvue’s predictions for the top trends affecting limited partners in 2023. 

LP alternatives allocations in 2023 

With public markets down in late 2022 and split opinions on whether we’re headed for a recession, LPs are watching their public market allocations shrink and their private market allocations tick up, sparking risk and exposure concerns. Some LPs are starting conversations about rebalancing their allocations. As a result, many LPs will be seeking additional data from their GPs as they investigate whether and how to balance things out. 

Public assets and private assets sitting on a seesaw, with private assets weighing more

 

LPs’ secondaries market participation in 2023 

As a result of unbalanced public-vs.-private portfolio allocations and concern for meeting 2023 capital calls, some LPs will be taking a hard look at their pacing models and projected cash flow for the year. If more liquidity is needed, certain allocators will take to the secondaries market, and as a result, we may see another year of heightened activity in this realm. With this heightened activity comes not only LPs offloading their assets, but also other LPs eager to take part in this hot secondary market and enhance their own returns by picking up discounted private equity holdings. 

Stack of cash with a chain lock around it and a key next to it. Below it, a data chart showing how secondaries activity has climbed

 

LP private debt investment in 2023 

Private debt has seen impressive growth in recent years, and more recent market factors, such as climbing interest rates, indicate that the growth will continue, perhaps at an even faster rate. The asset class serves as a strong private market option during times of market uncertainty thanks to its wide array of customizable options and its low volatility with returns dependably above those of the public markets. 

A cartoon hand adding a % block to a stack of other blocks. To its left, a data chart showing private debt's AUM climbing over the years

 

LP crypto investment in 2023 

It’s no secret that crypto had a rough close to 2022. After months of falling value and major players like FTX and BlockFi declaring bankruptcy, limited partners who have chosen to build cryptocurrency allocations into their portfolios will be keeping a close eye on what early 2023 brings. Some of the largest LPs are already feeling the pain of the recent volatility, such as the Ontario Teachers Pension Plan which announced it would write down $95 million in investments made in FTX. If the industry continues to see bad news, other key institutional investors may bring their crypto experimentation to an end, which could serve as a major blow to the legitimacy of the crypto market. 

Image of bitcoin on a rollercoaster, with a data chart to its left showing bitcoin's value falling from December 2021 to December 2022

 

LP ESG prioritization in 2023 

Just as in past years, ESG remains a key focus for limited partners according to Allvue’s 2022 ESG in Private Equity survey, with one-third planning to grow their ESG investment allocations to more than 20% of their portfolios within the coming years. With ESG investing guidelines still being defined and a standard still being sought after, many limited partners are on the hunt for the right mix of internal ESG leaders, external consultants, and third-party technology to help them achieve their responsible investing goals. For nearly half, third-party technology already is or soon will be playing a role in their strategies. 

ESG under a spotlight. Below it, a data representation of how LPs plan to focus their portfolios on ESG investments

 

Want to know more about what to expect in the new year?   

Study up with the rest of our 2023 trend content:  

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