According to Houlihan Lokey’s inaugural LP Compass survey of primary investors, private equity (PE) continues to demonstrate investor resilience in 2025, with Limited Partners (LPs) planning to maintain or modestly adjust their allocations to the asset class, despite ongoing concerns over geopolitical risks.
The survey, conducted in Q1 amid ongoing speculation concerning international trade agreements, garnered insights from 126 private equity LPs. It reveals sustained optimism in the private markets, despite macroeconomic uncertainty impacting global markets.
Geopolitical instability remains the top concern for LPs
Geopolitical uncertainty stands to be the leading challenge for LPs over the next 12 months. According to the survey, nearly half of respondents (42 per cent) cite geopolitical risks as the most pressing issue for the year ahead. This concern significantly outweighs other risks, such as inflation and interest rates (22 per cent), volatility in M&A activity (19 per cent), and technological disruptions (5 per cent).
Private equity allocations remain robust, despite risks
Despite these concerns, LPs’ outlook for private equity remains optimistic. Nearly half of respondents (49 per cent) plan to increase their PE allocations in 2025, while 42 per cent intend to maintain their current allocations. It remains to be seen what impact the denominator effect could have on PE allocations should public markets continue to fall during the weeks ahead.
Even in a world of trade tension and ongoing geopolitical headwinds, the 9 per cent of investors planning to decrease their PE allocations this year primarily cited liquidity constraints or internal considerations rather than concerns about investment performance of fees.
LPs remain focused on more developed PE markets
North America remains the leading investment destination, with 98 per cent of LPs planning to allocate capital to the region in the next 12 months, up from 94 per cent in the past year. Europe follows as a preferred destination, with 63 per cent of LPs considering it favourable both now and moving forward. Meanwhile, more nascent PE markets in Asia, Latin America, and the Middle East continue to attract relatively less capital compared to these more mature regions.
Healthcare and technology dominate industry preferences
While 52 per cent of investors take an opportunistic approach to industry selection, healthcare (44 per cent) and technology (44 per cent) stand out as the most targeted sectors, valued for their stability and long-term growth potential. Business services (40 per cent) and industrials (33 per cent) also attract strong interest, while consumer-focused funds see the least demand, with only 7 per cent favouring allocation—reflecting broader caution toward cyclical industries.
A growing appetite for emerging managers
Investor interest in emerging managers is on the rise, with more than 90 per cent of LPs willing to invest in a manager by their third fund. Notably, nearly half (46 per cent) of investors are open to supporting a manager’s first fund, signalling strong confidence in new managers. North American investors are the most willing, with nearly two-thirds (64 per cent) signalling interest in investing in new managers. This trend signals a shift in LPs’ approach as they seek to diversify portfolios and direct capital towards the next generation of talent.
Globally, only 10 per cent of LPs are reluctant to invest in any of the first three fund iterations. However, this figure rises to 36 per cent in the Middle East and Africa, highlighting a clear regional variation in appetite. Managers are typically considered “emerging” until they launch their fourth fund, after which they are seen as more established.
Co-investment is instrumental in fundraising
Investors are roughly three times more likely to invest in funds that offer co-investment opportunities. The clamour for co-investment, typically low-to-no-fee investments that are often, but not always, made in association with funds, explains why so many managers have made it an integral part of fundraising pitches.
More than 90 per cent of LPs are willing to co-invest with managers they know, while only 32 per cent would consider co-investing with new managers. Around one-third are open to stapled deals, committing to both a fund and co-investment, though only 4 per cent do so regularly.
Evaluating track records: LPs focus on real returns
Multiple on invested capital, not relative performance or time-influenced internal rate of return, is the most important measure of a manager’s worth, according to nearly half of investors (49 per cent). Interestingly, at a time of slow exits, the average time lapse between when capital is committed and when it is returned to an investor (the ratio of distributed to invested capital, or DPI) is considered the second most important measure for evaluating a manager’s track record.
Andy Lund, Managing Director and Global Co-Head of Primary Capital Advisory at Houlihan Lokey, says: “Our survey took place at a time of continued macroeconomic uncertainty, with political change in the US and geopolitical tension across the globe. However, LPs demonstrated a steadfast commitment to private equity, reflecting a profound confidence in its long-term value. The resilience of this asset class shines through in our research, with nearly half of LPs planning to increase their allocations and only a small minority looking to decrease. This is a clear vote of confidence in private equity’s ability to navigate complex global dynamics and deliver substantial returns.
“The findings also reveal an evolving mindset among LPs as they embrace new strategies. There’s a noticeable shift towards emerging managers, reflecting investors’ confidence in fresh talent and innovative approaches. Co-investment opportunities are also fostering a deeper alignment between LPs and fund managers in a model built on tailored, high-value partnerships for mutual success.
“These results reaffirm that private equity remains a cornerstone for generating sustainable, long-term growth even in an ever-evolving global landscape. Given the current turbulence associated with tariffs and a potential trade war, the resilience of this asset class is likely to be acutely tested once again. Regardless, one thing history has shown time and again is that private equity is an asset class that can quickly adapt and find compelling opportunity against a backdrop of market dislocation.”
