Poll: PE Investors Optimistic About 2012

Dec 12 2011 | 9:40am ET

Private equity investors polled by Coller Capital in its latest Global Private Equity Barometer predict major challenges for the industry over the next few years but are generally optimistic about 2012.

The report notes that fallout from “the bubble years” remains a factor for p.e. investors, half of whom believe they have ‘zombie’ funds in their portfolios (i.e., private equity funds with no prospect of earning carried interest that are kept running so their managers can collect their fees).

Over one-fifth of investors polled believe there will be no solution to these ‘zombie’ fund situations.

Coller’s also found the majority of investors think re-financing the buyout debt due to mature in 2013-15 represents a major risk to the industry.

Despite these concerns, most investors believe 2012 will be a ‘good’ or ‘excellent’ vintage year (over two-thirds of North American LPs believe this) and their 3-5 year return expectations for private equity have almost returned to pre-crisis (winter 2007-08) levels. One third of LPs expect returns of 16%+ from their private equity portfolios; half of LPs expect returns of 11-15%.

Said Jeremy Coller, CIO of Coller Capital: “Some people might be surprised that private equity investors are optimistic about returns when they see so many challenges facing the industry. I think the explanation lies in another of the Barometer’s findings: 93% of limited partners believe private equity investment results in healthier businesses. In investors’ eyes, the industry’s returns are underpinned by its ability to strengthen and add value to the companies in which it invests.”

While 20% of the LPs polled by Coller plan to reduce their exposure to Europe as a result of the sovereign debt crisis, investors have no plans to reduce their overall p.e. exposure. On a global exposure basis: 17% of investors intend to reduce their private equity allocations, but 24% intend to increase theirs.

On the other hand, established general partners are sitting on large volumes of un-invested money: 87% of the p.e. investors polled have received investment period extension requests for some funds in their portfolios, and 78% of LPs expect to receive more such requests in the next 2-3 years.

The Barometer suggests the fundraising environment will remain challenging in 2012, with 93% of respondents expecting to reject some re-up requests from their GPs in the next 18 months.

Moreover, LPs will feel pressure to delay even the commitments they do make—only one in five LPs expects to participate in the first close of the majority of funds to which it commits; 17% of LPs say they will never make a first close.

Almost 80% of investors believe that the net effect of these industry dynamics will be a continuing improvement in the terms and conditions they are offered by fundraising GPs.

Coller Capital polled 107 private equity fund investors, 40% of whom were located in North America, 40% in Europe and 20% in the Asia-Pacific region.

In terms of assets under management, they ranged from under $500 million (16%) to $50 billion+ (18%). The bulk of respondents (30%) were bank/asset managers, followed by public pension funds (13%) and endowments/foundations (13%).

For the purposes of the poll, p.e. refers to venture capital, buyout and mezzanine investments.

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