global private equity barometer winter 2007-2008 - coller capital

8/14/2019 Global Private Equity Barometer Winter 2007-2008 - Coller Capital

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A UNIQUE PERSPECTIVE ON THE ISSUES AND OPPORTUNITIES

FACING INVESTORS IN PRIVATE EQUITY WORLDWIDE

Global Private Equity BarometerWINTER 2007-08


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Coller Capitals GlobalPrivate Equity Barometer

Coller Capitals Global Private Equity Barometer is a unique

snapshot o worldwide trends in private equity a twice-yearly

overview o the plans and opinions o institutional investors

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

based in North America, Europe and Asia-Paciic.

This edition o the Global Private Equity Barometer captured

the views o 102 private equity investors rom all round the

world. The Barometers indings are globally representative by:

Investor location

Type o investing organisation

Total assets under management

Length o experience o private equity investing

Contents

Key topics in this edition o the Barometer include:

Investors reactions to the recent PE controversy

LPs returns expectations & appetite or PE

Pace o GP investment in the short-term

Emerging PE markets

Direct investment by LPs

First-time GPs

Fund terms & conditions

Obstacles acing European venture capital

Attractive areas or GP investment globally


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Limited impact o privateequity controversy on LPs

One in ten private equity investors, and a slightly higher

proportion o their colleagues, have changed their views o the

asset class in the light o the controversies o the last ew months.

Most investors, however, report no change in sentiment within

their organisations.

European and American LPs

divided on GP transparency

Over hal oEuropean LPs (56%) believe GPs should account

to a wider group o stakeholders on their large portolio

companies. Only one in three North American LPs agree.

Changes in investor perceptions of PE as a result of recent

controversy/negative commentary

(Figure 1)

(Figure 2)

There has beenno change withinmy organisation

I have noticed someopposition among

my colleagues

We have felt pressurefrom trade unions/other bodies to reduce

our exposure to PE

I, personally, havegreater doubts

about PE

LPs believing GPs should report to a wider group of stakeholders

on their large portfolio companies

European LPs North American LPs Asia-Pacific LPs


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Return expectations orAsia-Paciic PE increase, anddecrease or European buyouts

Investors are increasingly confdent about their returns rom

Asia-Pacifc private equity three quarters o LPs (73%) expect

Asia-Pacifc buyouts to yield net returns o 16%+ over the next

3-5 years, while 60% o LPs expect returns o this level rom

Asia-Pacifc venture.

Fewer LPs expect returns o 16%+ rom European buyouts than

they did a year ago.

Investors see signs that the

global buyout boom is ending

The majority o LPs suspect the good times are over or buyouts

especially North American LPs.

LPs seeing early signs of an end to the buyout boom

(Figure 4)

Yes there are early signs of boom ending No not yet


LPs expecting net returns of 16%+ over the next 3-5 years

Winter 2005-06 to Winter 2007-08

(Figure 3)

NorthAmericanventure

Europeanventure

Europeanbuyouts

Acrosswhole

portfolio

Fund-of-funds/

generalist

NorthAmericanbuyouts

Asia-Pacificventure

Asia-Pacificbuyouts

Winter 2005-06 Winter 2006-07 Winter 2007-08


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LPs think GPs will deploy lesscash in the coming year

Hal o investors expect the pace o GP investment to slow over

the next 12 months, compared with just 8-9% o LPs in the last

two years.

North America to be hardest

hit by the next PE downturn

Hal o investors (48%) said the impact o the next private

equity downturn would be elt most strongly in North America.

Only 7% o LPs thought the Asia-Pacifc region would be

hardest hit.

(Figure 5)

(Figure 6)

LP expectations for GP draw-downs over the next 12 months

Regions likely to be hardest hit by the next PE downturn

LP views

Less money compared with last year

About the same amount of money as last year

More money compared with last year

Winter 2005-06 Winter 2006-07 Winter 2007-08

NorthAmerica(48%)

Asia-Pacific(7%)

All regionsequallyaffected(27%)

Europe(18%)


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No reduction in investordemand or PE

There has been no diminution o investors growing appetite

or private equity as a result o recent market conditions. The

proportion o LPs planning increased allocations to the asset

class over the next 12 months has remained virtually unchanged

over the last fve global Barometers.

Investor access problems grow

in less developed markets

Fewer investors report problems accessing private equity unds

in North America, compared with two years ago. However, they

are encountering more problems than two years ago in Europe

and the Asia-Pacifc region.

LPs planning to increase their private equity allocations over

the next 12 months Winter 2005-06 to Winter 2007-08

(Figure 7)

Summer

2006

Winter

2006-07

Summer

2007

Winter

2007-08

Winter

2005-06

LPs unable to obtain their planned allocations to types of PE

over the last 12 months

(Figure 8)

Winter 2005-06 Winter 2007-08

Asia-Pacificbuyouts

Europeanventure

Europeanbuyouts

North Americanbuyouts

North Americanventure

Asia-Pacificventure


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LPs plan wider as well asgreater PE exposure

LPs remain frmly committed to the private equity asset class.

Over the next 3 years:

three quarters o LPs (78%) plan to increase the number o

their GP relationships.

almost all LPs (96%) intend to increase the total value o

their PE commitments.

almost two thirds o investors plan to re-balance their

portolios towards buyouts, and just over one third

towards venture.

(Figure 9)

LPs planned changes to the number of their GP relationships

over the next 3 years

Increasenumber of GPrelationships

(78%)

Reducenumber of GP

relationships(22%)

(Figure 10)

LPs planned changes to the total value of their PE commitments

over the next 3 years

Increase

total value of

PE commitments

(96%)

Reduce total value

of PE commitments

(4%)

(Figure 11)

LPs planned changes to the balance of their PE portfolios over

the next 3 years

Changeportfolio balance

in favour of

buyouts(63%)

Changeportfolio balance

in favour ofventure(37%)


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More LPs are investing inemerging PE markets

LPs are increasing their exposure to private equitys emerging

markets 40% o investors invest in such unds, compared

with 26% two years ago.

LPs investing in PE funds targeted at emerging markets

(Figure 12)

Winter 2007-08Winter 2005-06

Invested in PE fundstargeted at emerging markets

Not invested in PE fundstargeted at emerging markets

Shortage o proven GPs deters

emerging markets investmentLPs cite the lack o credible GPs and a less attractive risk/

return profle as the main actors limiting their investment in

emerging markets. However, over two thirds o investors (70%)

also say that they themselves lack the necessary expertise and

resources to manage an exposure to emerging PE markets.

Factors limiting/preventing LPs investment in emerging

PE markets

(Figure 13)

Significantly reduces attractiveness Not really a factor

Too few GPs withthe necessary skills/

track record

Risk/return trade-offis better in more

developed markets

LPs have insufficientexpertise/resources to

target emerging markets

Liquid quoted equitiesoffer a better/safer exposure

to emerging markets

LPs have had a badexperience of emerging

markets in the past


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The best areas for GP investment over the next 12 months

LP views

(Figure 15)

European buyouts

Asia-Pacific venture

North American venture

North American buyouts

European venture

Asia-Pacific buyouts 1

2

3

4

5

6

Asia-Paciic oers the most

attractive opportunities or GPinvestment over the next year

LPs see Asia-Pacifc buyouts as the most attractive area or GP

investment over the next year. Asia-Pacifc venture is also seen

as providing increasingly attractive opportunities or GPs in

the last three global Barometersit has risen up the league

table rom 5th place to 3rd.

India and China top LPs'ranking o emerging PEmarkets

LPs think India, China/Hong Kong/Taiwan and Central & Eastern

Europe will oer the most attractive investment opportunities

or GPs over the next 3 years.

The most attractive emerging markets for GP investment

over the next 3 years LP views

(Figure 14)

Attractive Less a ttractive

India

China/Hong Kong/Taiwan

Central &

Eastern EuropeSouth East Asia

Latin America

Russia

South Africa

Middle East/North Africa

Sub-SaharanAfrica


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One third o investors plan to increase their level o direct

investment over the next 3 years.

More LPs are investing directlyin private companies

The proportion o LPs investing directly in private companies is

rising. 41% o LPs currently undertake direct investments, up

rom 35% in Summer 2006.

(Figure 16)

LPs making direct investments into private companies

Yes through

co-investmentonly

(25%)

No(59%) Yes on a

proprietary basis only(9%)

Yes through bothco-investment and

proprietary investing(7%)

(Figure 17)

LP plans for direct investments over the next 3 years

Increase directinvestment

activity(33%)

Decrease directinvestment activity

(4%)

Maintaincurrent level

of directinvestment activity

(63%)


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We would

invest in

first-time funds

(66%)

We would not

invest in

first-time funds

(34%)

LPs are actively seeking theGPs o tomorrow

LPs remain open to investing with less-established GPs who

nevertheless have a good story to tell. Two thirds (66%) o

investors say they will invest in frst-time unds over the next

2-3 years i the right opportunity presents itsel.

LPs who would invest in first-time funds over the next 2-3 years

(Figure 18)

LPs to exert moderate pressure

on buyout und terms andconditions

Almost a third o investors believe they will extract better

terms and conditions rom buyout unds raised over the next

2-3 years though the majority o LPs expects the status quo

to continue.

LPs views on the terms and conditions of private equity funds

raised over the next 2-3 years

(Figure 19)

Europeanventure

Europeanbuyouts

NorthAmericanventure

NorthAmericanbuyouts

Asia-Pacific

venture

Asia-Pacific

buyouts

More favourable No change Less favourable


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Hal o European LPs thinkEuropean VC can rival NorthAmerican venture

Hal o European investors believe venture capital in Europe

will be as attractive as in North America within the next 5

years. Just a quarter oNorth American LPs agree.

Government attitudes are the

biggest block to the success oEuropean VC

LPs believe European government attitudes to private equity

are the greatest obstacle to the success o venture capital in

Europe over hal o LPs (57%) hold this view.

Structural actors, such as Europes capital markets, or

Europe's ability to unction as an integrated commercial

market, are seen as less o an obstacle.

LPs believing venture capital in Europe will be as attractive as in

North America within 5 years

(Figure 20)


Factors reducing the attractiveness of European venture capital

over the next 5 years LP views

(Figure 21)

A major obstacle Less of an obs tacle

Europeangovernment

attitudes to PE

The skills/experience/attitudes of European

venture capitalists

The skills/experience/attitudes of European

entrepreneurs

Europe as acommercial

marketplace

Europes capitalmarkets


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Respondents by region

(Figure 22)

Respondents by total assets under management

(Figure 23)

Respondents by type o organisation

(Figure 24)

Respondents by year in which they started to investin private equity

Europe(40%)

Asia-Pacific(20%)

NorthAmerica(40%)

$1bn-$4.9bn

(25%)

$5bn-$9.9bn

(12%)

$10bn-$19.9bn

(18%)

$20bn-$49.9bn

(7%)

$50bn+

(19%)

Under $500m

(6%)

$500m-$999m

(13%)

Bank/assetmanager

(15%)

Insurancecompany

(14%)

Government-owned organisation

(3%)

Publicpension fund

(22%)

Otherpension fund

(8%)

Endowment/foundation

(16%)

Familyoffice/private trust

(6%)

Corporation(4%)

Corporatepension fund

(12%)

Before

1980

(3%)1980-4

(18%)

1985-9

(13%)

1990-4

(11%)1995-9

(24%)

2000-4

(25%)

2005-7

(6%)

(Figure 25)

Coller Capitals Global PrivateEquity Barometer

Respondent breakdown Winter 2007-08

The Barometer researched the plans and opinions o 102

investors in private equity unds. These investors, based in

North America, Europe and Asia-Paciic, orm a representative

sample o the LP population worldwide.

About Coller Capital

Coller Capital, the creator o the Barometer, is the leading

global investor in private equity secondaries the purchase

o original investors stakes in private equity unds and

portolios o direct investments in companies.

Research methodology

Research or the Barometerwas undertaken or Coller Capital in

September-October 2007 by IE Consulting, a division o Incisive

Media, which has been conducting private equity research

or nearly 20 years.

Notes:Limited Partners (or LPs) are investors in private equity unds

General Partners (or GPs) are private equity und managers

In this Barometerreport, the term private equity (PE) is a

generic term covering venture capital, buyout and

mezzanine investments


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global private equity barometer winter 2007-2008 - coller capital

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