Study: Confident Investors Shake Up PE Portfolios

Jun 20 2011 | 9:19am ET

In the wake of the 2008 financial crisis, investors may be shaking up their private equity portfolios, but overall confidence in the sector remains strong, according to the Coller Capital’s latest Global Private Equity Barometer.

The survey showed that 54% of PE investors polled believe private equity is more correlated with public equities than they once did and now expect one in five of today’s equity managers to fail.

The financial crisis has also resulted in a wide-ranging re-balancing of private equity portfolios and the recruitment of more in-house staff, according to the Barometer.

That said, asset allocations to the sector are growing (a quarter of LPs will increase their target allocations in the next 12 months); expectations for exits are strong (two-thirds of investors expect to see a significant increase in exits to trade buyers within the next 12 months); and portfolio performance has improved.

The report shows that 62% of all LPs—and 71% of North American LPs—can now report lifetime net returns of 11-15% or higher from private equities.

The Barometer also discovered “unprecedented” investor interest in secondaries selling—over one-third of North American LPs, 25% of Eurpean LPs and up to 42% of Asia-Pacific LPs plan to sell private equity assets in the next two years.

Investors also see the secondaries market as a tool for portfolio re-shaping as reflected in investors’ buying intentions—30% of North American LPs and 35% of European LPs and 68% of Asia-Pacific investors intend to buy p.e. interests in the next two years.

Said Jeremy Coller, CIO of Coller Capital: “Investor plans for secondaries sales show the scale of the change coming to the private equity landscape. Compare the situation today with three years ago. One-third of North American LPs plans to sell assets in the next 24 months. Whereas, in the summer of 2008, only one-fifth of investors had ever sold. When you also look at the proportion of investors looking to buy secondaries; the flood of money targeting new private equity markets; and the accelerating pace of recruitment within LP institutions, it’s clear we are working in a rapidly-evolving industry.”

The Barometer also found that one-third of LPs intend to grow their private equity teams in the next two years (including 47% of public pension funds and 41% of insurance companies) and that European investors are twice as exposed to China and India as to the more developed private equity markets of Australasia, Japan and Korea.

The study also suggests most investors feel private equity debt markets function well—60% of LPs believe most or all high-quality deals are being funded to an appropriate level; 63% believe the debt/equity ratio of today’s buyout deals is about right; and 69% welcome the recent growth in dividend recaps.


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