LPs remain sceptical on the big buyout class of funds
By Paul Mackintosh - 17/06/13
The latest summer edition of the Coller Capital Global Private Equity Barometer focused chiefly on issues of confidence in the asset class among its poll of some 140 representative private equity (PE) limited partners (LPs) worldwide, and found expectations strong – and perhaps in some surprising places. Some 76% of the poll looked forward to good PE investment opportunities in Europe – the epicentre of the global crisis – over the next one-to-two years. Unsurprisingly, this new enthusiasm for Europe was very specific to sectors and locations, with 37% of the LPs expecting private equity general partners (GPs) to find many target opportunities in Northern Europe, versus just 11% expecting the same from Southern Europe. Add in the LPs who expect highly selective investment opportunities, and the LP predilection for Northern Europe is close to 99%.
Commitment to Asia also remains high, with over half of the poll having some form of investment in the region. On a country basis, some 65% currently invest in China, and almost 60% in India. Some 45% also plan to gain exposure to Indonesia over the next three years. Around 75% of the poll expect the key opportunities in Asia to come from the sale of businesses or assets by families and entrepreneurs, with expectations for corporate disposals, secondary buyouts or distressed situations far lower. Some 81%, meanwhile, expect strong opportunities from corporate disposals and spinoffs in Europe and North America, with some 58% also expecting good results from bankruptcy and Chapter 11-dictated events in the West.
With this level of positive sentiment, it’s no surprise to find LPs reporting solid returns from their private equity portfolios. Some 63% of the poll quote net lifetime returns for their PE portfolios of 11-15% or higher – the highest level since before 2009 – though the proportion reporting higher than 16% net lifetime returns has also consistently declined, and now stands at just 13%. That said, LPs remain sceptical on the big buyout class of funds, with 88% saying they have no plans to increase their commitments to such vehicles over the next two-to-three years. And some institutions are reporting strong internal resistance to support for the asset class from among their own colleagues. Some 37% of private equity LPs from pension plans report that they have influential colleagues who believe that their plan’s allocation to private equity should be reduced or removed entirely; at endowments and foundations, the proportion rises to 43%.