Post-Crisis, Investors Find PE Appealing

Dec 9 2013 | 9:18am ET

Private equity has become increasingly attractive as an asset class in the wake of the 2008 financial crisis, according to new research from Coller Capital.

The firm polled 113 private equity investors for its latest Global Private Equity Barometer and found that 44% of them believe this to be true while 12% believe p.e. has become less attractive.

According to the Barometer, 37% of the investors polled will increase their target allocation to private equity over the next 12 months. Moreover, half of sovereign wealth funds will expand their p.e. teams as will nearly half of insurers and asset managers and one quarter of public pension plans.

The majority (62%) of investors polled think hurdle rates should remain at around their current level for the next 5-10 years while among those who disagree there is no consensus as to whether they should be higher or lower.

Over half (54%) of LPs have co-invested with their GPs in the last two years and two thirds of North American LPs and half of European LPs would like to be offered more co-investments.

On the other hand, only one third of private equity investors invest in GP-sponsored IPOs, largely because many feel IPOs are generally over-priced.

According to the Barometer, the ‘typical’ (median) investor expects a 5% risk premium from private equity over public/quoted equity and is seeking it in growth capital and small-to-mid-market buyouts in North America and Europe, less so in large buyouts and venture capital.

Investors are bearish about market conditions over the next 1-2 years—56% of LPs think the rate of distributions from private equity funds will increase over the next 12-18 months and 42% of investors expect their GPs’ investment pace to increase.

But they remain skeptical about futuristic tech-based ventures: 60-70% of private equity investors dismiss initiatives like asteroid mining and the Los Angeles-San Francisco Hyperloop as “rich men’s vanity projects.”

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