Not only are private equity
managers finding their fees under pressure according to consultancy
Mercer (see Alternate
assets managers feel pressure on fees),
but they are also finding demands on their ability to produce
superior returns increasing.
This is highlighted in a study
conducted by Preqin, a London-based data provider to the
alternative asset management industry.
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Based on interviews with more than
100 major investors in private equity funds, Preqin found that 63%
of the investors expect to receive returns of more than four
percentage points over public markets. This compares with only 17%
of investors interviewed in December 2007 that shared these
expectations.
“Investors’ private equity return
expectations have risen considerably over the past few years,”
commented Preqin manager, investor data, Helen Kenyon.
She added that in their pursuit of
higher returns, many investors are reassessing relationships they
have with private equity managers and have become more receptive to
new managers than ever.
Specifically, Preqin found that 71%
of investors are considering investing with managers they have no
prior relationship with in 2011, compared with 59 the year
before.
Fundraising
improves
On fundraising by private equity
firms, Kenyon investor interviews pointed to a gradual improvement.
Indicative of this, 54% of investors indicated that they expected
to commit more capital to funds in 2011 than in 2010, while 90% of
investors intend to increase or maintain their private equity
allocations over the next three to five years.
Key areas of interest for investors
in 2011, Kenyon revealed, include small- to mid-market buyout funds
and distressed private equity, which are seen as attractive by 55%
and 20% of investors respectively.
On emerging market private equity,
70% of investors quizzed currently invest in or are considering
investing in this sector.
Most favoured of emerging markets
is, unsurprisingly, China, followed by India and Brazil.
For investors seeking a home for
their private equity commitments, choice is not a problem.
Kenyon noted that 1,638 funds are
already seeking an aggregate $608bn in commitments while many other
key players are slated to hit the fundraising trail in 2011.
“Competition for LP [limited
partnership] capital will remain intense,” she concluded.
Limited partnerships are the standard vehicle for investment in
private equity funds.
