Competition For PE Capital Rising As Investor Interest Increases

Aug 25 2017 | 5:28pm ET

Private equity fund managers are seeing rising interest in the alternative investment strategy, but the rapid rise in the number of funds seeking capital has increased competition for allocations. 

In a survey of more than 150 private equity fund managers done by industry data specialist Preqin in June, 59% have seen investor interest for the asset class rise in the 12 months through June 2017. This increased interest is most apparent among investors in the developed markets of North America, Europe and Asia, and is coming primarily from family offices and sovereign wealth funds. 

However, Preqin’s survey also reveals that the growth in investor interest is being matched by an increasing number of private-equity funds in the market for capital, increasing the competition for investor commitments. Indeed, four out of five respondents to the survey said competition has increased over the past 12 months, while a mere 1% said it has diminished. 

The observations were published in Preqin’s H2 2017 Private Equity Fund Manager Outlook. Other key highlights:

  • While 59% of surveyed firms reported an increase in investor appetite over the past 12 months, 13% reported a significant increase. Only 12% of fund managers reported seeing a decrease in appetite. 

  • Fund managers have seen the largest increases among investors in Asia, North 
America and Europe, at 50%, 45% and 38% respectively.
  • 58% of respondents are seeing increase in appetite from family offices in the past 12 months, while 26% have seen reduced interest from banks (possible due to the incoming Basel III regulations). 

  • 80% feels there is more competition for fundraising compared to 12 months ago, while just 1% feels that competition has decreased. 

  • There is a record number of funds in market: 1,998 private equity vehicles were seeking a total of $676 billion in investment at the start of Q3 2017. 

  • 32% of fund managers expect fundraising to be a key challenge facing the industry in the year ahead. 

“Investor appetite for private equity has been very high in recent quarters, with the industry returning record levels of capital and offering robust returns on investment,” said Christopher Elvin, head of private equity products for Preqin. “Interest in private equity is continuing to rise, and almost all investor types are seeing a net increase in appetite for the asset class.”

“However, the number of funds coming to market is growing to new record highs, and fund managers are seeing increased competition in attracting capital from investors. The ease with which some of the largest and most successful firms are able to raise new vehicles does not seem to be true across the market, and small or emerging fund managers may still find fundraising to be a long and difficult process.” 

Preqin is a leading source of information for the alternative assets industry. Founded in 2003, the company provides data and analysis via online databases, publications and bespoke data requests to more than 47,000 professionals in 90 nations.

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