#PrivateEquity Investors remain committed to +PrivateEquity @Preqin

Ayesha Javed 14 Feb 2012

The @Preqin Investor Outlook: Private Equity survey was compiled from interviews with more than 100 institutional investors globally in December last year and showed that the number of investors that plan to make new commitments to private equity over the next year has risen from 63% in December 2010 to 73% last December.


According to the survey, 35% of respondents were below their target allocations to private equity, compared with 33% in December 2010 and 16% were overexposed to private equity, a rise on the 13% in December 2010 but a drop from 19% in June 2011.

Of investors that are planning to actively commit to funds in 2012, 84% will consider forming new relationships this year and 46% will consider investing in a fund before it holds a first close.

The typical large buyouts of the boom era are out of favour with investors, who instead favoured funds focused on smaller deals and distressed investment.

Investors were most interested in investing in small to mid-market buyout funds, with 45% of respondents naming these funds as presenting good opportunities in the current market, and 49% looking to invest in such funds in 2012.

Meanwhile, 20% view the asset class more positively as a result of recent market volatility and distressed private equity funds also appealed to many investors, with 26% of respondents expecting to allocate capital to distressed funds this year. A further 16% of respondents are seeking secondaries opportunities while 16% are seeking to invest in large or mega buyout funds this year.

This is encouraging news for the more than 1,800 funds currently on the road seeking to raise a combined $700bn, according to Preqin data.

Respondents to the survey had a number of suggestions for firms seeking to raise funds.

One Danish investor said that general partners, or private equity fund managers, needed to show “good returns; alignment of interests; lower management fees so that they only cover operational costs and so fund managers only make money from carried interest. [This will ensure] they make real money from their investment success after five, six or seven years”.

A US endowment investor said that firms needed “to make money in the current environment we live in today”.

However, investors remain cautious, and favour experienced fund managers. Just 18% were readily prepared to invest with first-time fund managers, while 55% would not consider investing in such funds.

A Peruvian private sector pension fund respondent said that “good strategy, proven track record, fair terms, exceptional team” were important factors when deciding which fund manager to invest with.

--write to Ayesha Javed at ayesha.javed@dowjones.com

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