A UNIQUE PERSPECTIVE ON THE ISSUES AND OPPORTUNITIESFACING INVESTORS IN PRIVATE EQUITY WORLDWIDE

Global Private Equity Barometer WINTER 2016-17

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2 W I N T E R 2 0 1 6 - 1 7

Coller Capital’sGlobal Private Equity BarometerColler Capital’s Global Private Equity Barometer is a unique

snapshot of worldwide trends in private equity – a twice-yearly

overview of the plans and opinions of institutional investors in

private equity (Limited Partners, or LPs, as they are known) based in

North America, Europe and Asia-Pacifi c (including the Middle East).

This 25th edition of the Global Private Equity Barometer captured

the views of 110 private equity investors from around the world.

The Barometer’s fi ndings are globally representative of the LP

population by:

Investor location

Type of investing organisation

Total assets under management

Length of experience of private equity investing

Contents

Topics in this edition of the Barometer include investors’ views

and plans regarding:

Returns from, and appetite for, PE

Likely impact of Brexit on Europe and European PE

Long-term outlook for hedge funds

LP investments in GP management companies

Plans for new GP relationships

Fund restructurings

The secondary market

Recruitment within LPs’ PE teams

Co-investing economics

ESG as a determinant of new fund commitments

Social impact investing

Attractiveness of emerging PE markets

PE real assets

Corporate venturing

PE distributions

One third of public pension funds and insurance companies to miss their overall return targets

36% of insurance company LPs and 31%

of public pension fund LPs believe their

organisations will miss their overall (rather than

private equity) investment return targets in the

next 3-5 years, unless there is signifi cant change

in their economic environment and/or operating

model .

LPs unlikely to meet their overall ( rather than PE) investment return targets in the next 3-5 years

Three quarters of LPs foresee net annual PE returns of over 11%

Investors are optimistic about the medium-term

outlook for their private equity portfolios, with

77% of LPs forecasting net annual returns of

over 11%, and around a fi fth of LPs forecasting

net annual returns of over 16%.

Their expectations for venture capital returns

from North America , Europe and Asia-Pacifi c

have all improved.

LPs’ forecast annual net returns from PE in the next 3-5 years

(Figure 1)

(Figure 2)

(Figure 3)

3W I N T E R 2 0 1 6 - 1 7

Over a third of LPs foresee lower European PE returns in the event of a ‘hard’ Brexit

37% of LPs believe their European private equity

returns would suffer as a result of a ‘hard’

Brexit (a decisive separation of the UK from

the EU, involving signifi cant restrictions on the

UK’s access to the EU single market and strong

immigration curbs).

LPs’ views on the impact of a ‘hard’ Brexit on European PE returns

0%

5%

10%

15%

20%

25%

30%

35%

40%36%

31%

25%

17% 17%

13%

10%

Insurancecompany

Publicpension

fund

Otherpension

fund

Endowment/foundation

Familyoffice/privatetrust

Corporatepension

fund

Bankmanaging3rd party

funds%

resp

onde

nts

Less than 5% 5-10% 11-15% 16-20% More than 20%

Across their wholePE portfolios

North Americanbuyouts

North Americanventure

Europeanbuyouts

Europeanventure

Asia-Pacificbuyouts

Asia-Pacificventure

Funds-of-funds

Net annual returns (% respondents)

1% 22% 56% 20% 1%

2% 11% 48% 33% 6%

6% 13% 27% 38% 16%

5% 21% 45% 24% 5%

16% 23% 36% 22% 3%

4% 16% 47% 27% 6%

10% 18% 30% 32% 10%

9% 53% 36% 2%

37% 6%

Negative effect on returns Positive effect on returns

% respondents

W I N T E R 2 0 1 6 - 1 74

Most LPs think a ‘hard’ Brexit would damage both the UK and the EU

Three quarters of the world’s institutional

investors in private equity think the overall

impact of a ‘hard’ Brexit would be negative for

the UK.

Two thirds of LPs think the overall impact would

be negative for the EU.

LPs’ views on the impact of a ‘hard’ Brexit on the UK and EU

LPs’ hedge fund exposure will decline further over time

Two fi fths of LPs expect to reduce or cease their

exposure to hedge funds over the next 3-5 years,

compared with 13% of LPs that expect their

institutions to start or increase investing.

LPs’ expected exposure to hedge funds in 3-5 years

Almost half of PE investors are planning a higher target allocation to infrastructure

Nearly half of investors invested in private equity

and alternative assets expect their institution’s

target allocation to infrastructure to rise over the

next 12 months. Two fi fths expect to see a higher

allocation to private equity and real estate.

27% of LPs expect a reduction in their

organisation’s allocation to hedge funds in the

next 12 months ( compared with 16% of LPs in

the Barometer of Winter 2015-16).

Changes in investors’ planned target allocations to alternative assets over the next 12 months

7%74%

1%64%

On the UK

On the EU

% respondents

PositiveNegative

38%1%

47%4%

39%6%

38%5%

8%27%

Infrastructure

Alternative assets overall

Private equity

Hedge funds

Real estate

% respondents

IncreaseDecrease

3% 36% 6%7%

Begin investing

% respondents

Increase exposureDecrease exposureStop investing

(Figure 5)

(Figure 4)

(Figure 6)

5W I N T E R 2 0 1 6 - 1 7

LP stakes in GP management companies create potential for conflicts of interest, LPs say

Two thirds of PE investors believe that the trend

towards LPs buying stakes in GPs risks creating

confl icts of interest and misalignment. 82% of

European LPs hold this view.

(Figure 7)

Investors’ views on LPs taking stakes in GP management companies

It is an appropriate investment

34%

It creates potential conflicts/

misalignments66%

79% of LPs will form five or more new GP relationships in the next three years

The typical LP will form 5-10 new GP

relationships over the next three years. Only a

fi fth of LPs expect to form new GP relationships

at a slower rate than this in the next three years;

while a quarter of LPs expect to form 11 or more

new GP relationships within the same period.

LPs’ expected number of new GP relationships over the next 3 years

(Figure 8)

0%

10%

20%

30%

40%

50%

60%

21%

55%

15%

9%

Fewer than 5 5-10 11-16 Over 16

% re

spon

dent

s

LPs believe they have mostly made the right decisions in fund restructuring situations

78% of LPs invested in funds restructured by their

GPs believe, with hindsight, that they generally

made the right decision about whether to exit

or remain invested. Only one in twenty   LPs think

they generally made the wrong choice.

LPs’ views, with hindsight, on their investment decisions in fund restructuring situations

(Figure 9)

We made the wrong decision

in most cases5%We made

the right decision in some cases

17%

We made the right decision

in most cases78%

W I N T E R 2 0 1 6 - 1 76

LPs expecting their PE team size to expand over the next 24 months70% of SWFs and bank-based asset managers will hire PE staff in the next two years

Almost 40% of LPs plan to increase the size of

their private equity teams over the next 24 months.

The proportion is highest among sovereign wealth

funds/government-owned institutions and banks

managing third-party money, where around 70%

of LPs plan to add to their teams.

Only two LPs of all those surveyed said they would

reduce the size of their teams in the same period.

(Figure 1 1)

71%

70%

40%

35%

33%

29%

25%

25%

14%

Govt. organisation/SWF

Bank managing3rd party funds

Corporation

Public pension fund

Endowment/foundation

Insurance company

Bank (own capital)

Other pension fund

Family office

% respondents

LPs planning to buy or sell in the secondary market in the next 24 monthsAlmost two thirds of LPs will buy or sell in the secondary market in the next two years

Half of LPs plan to buy assets in the secondary

market in the next 24 months. And well over a

third of LPs (37%) intend to sell assets.

0%

10%

20%

30%

40%

50%

60%

49%

37%

Likely to buy Likely to sell

% re

spon

dent

s

(Figure 1 0)

W I N T E R 2 0 1 6 - 1 7 7

LP views on the likelihood of more co-investment opportunities coming with fees and carried interest in the future

Economics of co-investing will change, according to LPs

Almost two thirds of LPs expect more

co-investment opportunities to attract fees and

carried interest in the future.

LPs that have refused potential fund commitments largely for ESG reasonsOver a third of European and Asian-Pacific LPs have refused to commit to PE funds on ESG grounds

For over a third of LPs based in Europe and

Asia-Pacifi c, ESG considerations have played a

major or primary role in refusing to commit to a

private equity fund . The same is true for only a

fi fth of North American LPs.

A large majority (86%) of government-owned

organisations and sovereign wealth funds have

refused to commit to private equity funds on ESG

grounds.

Areas of focus for LPs’ new staffLPs are hiring for direct / co-investment programmes

Almost all the LPs adding staff to their private

equity teams will ask their new hires to focus

on direct investments and co-investments. Three

quarters of North American LPs, and two thirds

of Asian-Pacifi c LPs, will ask their new hires to

focus on commingled funds – compared with less

than half (43%) of European LPs.

(Figure 1 3)

(Figure 1 4)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%92%

72%69%

60%56%

Directs/co-investments

Exploring new

opportunities

Admin/back office

Commingled funds

Portfolio reshaping

% re

spon

dent

s

Unlikely 38%

Likely62%

0%

5%

10%

15%

20%

25%

30%

35%

40%

21%

34%

% re

spon

dent

s

36%

North America Europe Asia-Pacific

(Figure 1 2)

W I N T E R 2 0 1 6 - 1 78

Two thirds of Europe an and Asian-Pacific LPs will have acted on climate change within three years

Two thirds of Europe an and Asian-Pacifi c LPs

are either taking climate change into account in

their private equity decision-making or will be

doing so within 2-3 years. Only a third of North

America n LPs are doing so, or plan to do so,

in the same timeframe.

LPs taking climate change into account in their PE decision-making– now and in 2-3 years’ time

Social impact investing viewed cautiously by LPs

80% of LPs personally believe that social

impact investing is appropriate as a use of their

institutions’ capital only if it does not reduce

fi nancial returns.

LPs’ personal views on the appropriateness of social impact investing as a use of their organisation’s funds

Half of LP institutions are implementing a social impact investment strategy

Half of LP institutions either have social impact

investments or plan to do so within the next

two years. 24% of LP institutions plan to begin

or increase social impact investing in th is

period.

LP organisations’ policy on social impact investing over the next 24 months

(Figure 1 5)

(Figure 1 6)

(Figure 1 7)

0%

10%

20%

30%

40%

50%

60%

70%

9%

23%

14%

40%

26%

North America Europe Asia-Pacific

Already a factor in our decision-making

52%

% re

spon

dent

s

Will become a factor within 2-3 years

Yes – even if it fails to optimise

our financial returns 20%

Only if it does not reduce

our financial returns80%

No plansto invest

47%

Maintain26%

Decrease/stop3%

Increase14%

Begin10%

W I N T E R 2 0 1 6 - 1 7 9

Investors prioritising growth in unquoted ( vs quoted) equities exposure

Two fi fths of LPs are planning to increase their

unquoted (private equity) exposure in developed

markets, and one quarter plan to grow their

private equity exposure in emerging markets.

Only a tenth of LPs plan to increas e their

exposure to quoted equities – this is true for

both developed and emerging markets.

LPs’ plans for exposure to quoted/private equity in developed and emerging markets in the next 3 years

India and South East Asia ‘offer most attractive PE opportunities’ in the Asia-Pacific region, LPs say

A third of LPs say India and South East Asia will

be particularly attractive markets for private

equity in the next three years. Fewer LPs think

China and Australasia will provide very attractive

private equity opportunities.

LPs’ views on the attractiveness of PE opportunities in the Asia-Pacific region in the next 3 years

Brazil and Mexico ‘offer most attractive PE opportunities’ in Latin America, LPs say

A third of LPs think Brazil and Mexico will be

particularly attractive markets for private equity

in the next three years. However, attitudes to

Brazil are mixed. Brazil and Argentina are named

as the two least attractive Latin American private

equity markets by around a quarter of LPs.

LPs’ views on the attractiveness of Latin American PE opportunities in the next 3 years

(Figure 1 8)

(Figure 19)

(Figure 2 0)

Emerging markets

Unq

uote

d eq

uity

expo

sure

(PE)

Quo

ted

equi

tyex

posu

re

Developed markets

Developed markets

Emerging markets

% respondents

IncreaseDecrease

7%

10% 27%

11% 9%

6% 11%

39%

34%8%

32%5%

20%17%

17%10%

12%13%

South East Asia

India

Japan

China

Australasia

South Korea

% respondents

More attractiveLess attractive

13%20%

36%25%

32%16%

29%16%

22%14%

19%26%

Mexico

Brazil

Colombia

Peru

Argentina

Chile

% respondents

More attractiveLess attractive

20%14%

W I N T E R 2 0 1 6 - 1 710

Half of LPs are invested in PE real estate and PE infrastructure

49% of LPs are invested in private equity real

estate, and 48% in private equity infrastructure.

In addition, one in ten LPs plans to start investing

in these strategies in the next three years.

LPs’ current and planned future exposure to real estate and infrastructure

Corporate venturing is a mixed blessing, LPs say

Just over half of LPs believe the rapid growth of

corporate venturing is a positive development for

the venture capital sector, as it boosts the wider

venture ecosystem – whereas 45% of LPs believe

it is negative for the sector, creating unhelpful

competition for purely fi nancial investors.

LP views on the rapid growth of corporate venturing

Two in five LPs expect PE distributions to slow

41% of LPs expect distributions from their

private equity portfolios to slow over the

next 24 months, compared with 29% of LPs

that expect an improvement (and a similar

proportion that do not foresee a change in

distributions pace).

LP expectations for the pace of PE distributions over the next 24 months

(Figure 2 1)

(Figure 2 2)

(Figure 2 3)

0%

20%

40%

60%

80%

100%

Private equity infrastructure

InfrastructurePrivate equity real estate

Real estate

68%

4%

6%

49%

10% 10%

49% 48%

Invested currently

Likely to start investing in the next 3 years

% re

spon

dent

s

It creates unhelpful

competition for financial investors

45%

It helps financial investors

by boosting the wider venture

ecosystem55%

29%

Slow down Speed up

41%

% respondents

W I N T E R 2 0 1 6 - 1 7 11

Coller Capital’sGlobal Private Equity Barometer

Respondent breakdown – Winter 2016-17

The Barometer researched the plans and

opinions of 110 investors in private equity

funds. These investors, based in North America,

Europe and Asia-Pacifi c (including the Middle

East), form a representative sample of the LP

population worldwide.

About Coller Capital

Coller Capital, the creator of the Barometer,

is a leading global investor in private equity

secondaries – the purchase of original investors’

stakes in private equity funds and portfolios of

direct investments in companies.

Research methodology

Fieldwork for the Barometer was undertaken for

Coller Capital in September-October 2016 by

Arbor Square Associates, a specialist alternative

assets research team with over 50 years’

collective experience in the PE arena.

Notes Limited Partners (or LPs) are investors in

private equity funds

General Partners (or GPs) are private equity

fund managers

In this Barometer report, the term private

equity (PE) is a generic term covering venture

capital, growth, buyout and mezzanine

investments

Respondents by type of organisation

Respondents by year in which they started to invest in private equity

Respondents by region

Respondents by total assets under management

(Figure 2 4)

(Figure 2 5)

(Figure 2 6)

(Figure 2 7)

Asia-Pacific20%

North America

40%

Europe40%

$1bn-$4.9bn26%

$500m-$999m

7%

$5bn-$9.9bn

9%

$10bn-$19.9bn

10%

$20bn-$49.9bn

16%

$50bn+26%

Under$500m

6%

Bank/assetmanager

25%

Corporation5%

Corporate pension plan

7%

Public pension plan24%

Other pension plan7%

Endowment/foundation

6%

Family office/private trust

6%

Government-ownedorganisation/SWF

6%

Insurance company14%

1980-415%

1985-911%

1990-410%

1995-923%

Before19803%

2010-141%

2015-163%

2000-424%

2005-910%

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