Survey Says Institutional Investors Bullish On P.E.

Aug 30 2011 | 7:49am ET

Institutional investors are looking to private equity as a source of alpha but expect greater transparency, reporting and risk management from managers, according to a new survey from SEI in collaboration with Greenwich Associates.

The survey of over 400 institutional investors, consultants and fund managers found that 26% intended to increase their p.e. allocations over the next 12 months. Expectations for these allocations varied, however: 68% of investors list return potential as their primary objective, while 50% of consultants named diversification.

“As investors are looking to achieve higher returns in an increasingly challenging return environment, private equity is coming back, but standards are higher across the board,” said Rodger Smith, managing director at Greenwich Associates.

The survey also suggests manager-selection criteria have become more demanding. SEI says respondents still list people, investment philosophy and investment performance as key considerations but a fourth criterion—process—is becoming increasingly important. Investors ranked items like portfolio transparency, fees and quality of reporting and communications as important manager-selection criteria as well.

More than 80% of investors polled said they’d invested in venture capital, leveraged buyouts, growth capital, distressed investments and mezzanine capital. Moreover, the secondary market for private equity is also thriving as investors are buying or selling to meet liquidity demands or pick up deals at deeply discounted prices.

The private equity market has been robust in 2011, recording over 300 exits worth an aggregate value of $120.1 billion in the second quarter alone, well above the record $81.5 billion generated in the second quarter of 2010.

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