preqin investor outlook private equity q3 2011

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    Preqin Investor Outlook: Private EquityH2 2011

    The Opinions o 100 Leading LPs on the Market

    and Their Plans or the Next 12 Months

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    2 2011 Preqin Ltd. www.preqin.com

    Preqin Investor Outlook: Private Equity

    Preqin, the alternative assets industrys leading source o data and intelligence, welcomes you to the H2 2011edition o Preqin Investor Outlook: Private Equity, a unique look at investors in the asset class, their current opinionso the market and the outlook or undraising in the year ahead.

    Preqin Investor Outlook draws on the results o detailed interviews conducted with over 100 institutional investorsrom around the world during June 2011. The sample o LPs was selected rom Preqins Investor Intelligencedatabase, the most comprehensive and accurate source o inormation on investors in private equity undsavailable today, and the interviews were carried out by our skilled teams o multi-lingual analysts.

    Speaking directly to institutions located across the globe has enabled us not only to provide in-depth analysis otheir current views and opinions, but to accompany this with comments rom key investment proessionals in theirown words, providing readers with a unique insight into the attitudes o the leading investors in private equity.

    We hope that you fnd the inormation included within this report useul and interesting and, as always, wewelcome any eedback and suggestions you may have or uture editions.

    Methodology:

    Contents:

    Fundraising in 2011 p. 3

    LPs Returns Expectations p. 4

    Re-Ups and New Relationshipsp. 5

    First-Time Funds and First-Close Investorsp. 6

    What Can GPs Do to Stand Out? p. 7

    Key Strategies over the Next 12 Months p. 8

    Direct Investments, Co-Investments and Secondaries p. 9

    Allocations and Intentions or 2011 and Beyond p. 10

    Preqin: A Direct Approach to Investor Intelligence p. 11

    About Preqin p. 12

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    3 2011 Preqin Ltd. www.preqin.com

    Preqin Investor Outlook: Private Equity

    Although the market remains challenging in 2011, there are signs

    that fundraising is picking up: up to the end of Q2 2011, 311 funds

    had closed during the year so far, having raised an aggregate

    $141.8bn, which represents over half the overall $265.7bn raised

    by funds that closed in the whole of 2010.

    Our conversations with investors also suggest that the pace of

    new commitments is improving. Almost two-thirds (64%) of LPs we

    spoke to for this study made new commitments over the course of

    H1 2011, compared to the 54% of LPs interviewed for our study in

    June 2010 that made new commitments in the first half of that year.

    Furthermore, well over half of LPs (57%) expect to make additional

    new commitments before the end of the year (see Fig. 1), with a

    further 15% of LPs planning to make their next commitment at some

    point in 2012. A noteworthy 16% of investors plan to make new

    commitments on an opportunistic basis and therefore could invest

    in a new fund before the end of the year if an attractive opportunity

    arises.

    We asked those LPs planning to make new fund commitments this

    year how much capital they plan to commit to new opportunities in

    2011 compared to 2010. 46% of these LPs plan to commit more

    capital to funds this year than they did in 2010 and an additional

    39% plan to commit the same amount of capital, as shown in Fig. 2.

    Reasons for increasing the pace of new commitments in 2011 were

    varied. A number of LPs commented that they have seen an increase

    in the number of good funds available in the market, particularly in

    the form of re-up opportunities. One UK-based pension fund told us:

    The number and quality of funds on offer are much better than in

    2010. There are more options available with the quality managers

    coming back to the market. Some LPs said they plan to commit

    more to the asset class in 2011 as they have more capital available

    following distributions from existing funds in their portfolio, while

    other investors expect to commit more in 2011 than in 2010 to build

    up to or maintain their targeted level of exposure to the asset class.

    Fundraising in 2011

    Investors are gradually regaining confdence in the asset class and, while many are not investing at the same pace as in

    the years prior to the downturn, und managers should be encouraged that the number o investors looking to make

    commitments is steadily improving. Preqin interviewed 100 institutional investors in private equity unds around the

    world in June 2011 to fnd out their attitudes towards the current private equity market and their plans or the remainder

    o 2011 and beyond.

    The pace of new commitments is improving ...

    Source: Preqin

    Fig. 1: Timerame or Next Intended Commitments to Private

    Equity Funds

    Source: Preqin

    Fig. 2: Amount o Capital Investors Plan to Commit to Private

    Equity Funds in 2011 Compared to 2010

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    4 2011 Preqin Ltd. www.preqin.com

    Preqin Investor Outlook: Private Equity

    Fig. 3 shows that 90% of LPs expect their private equity portfolios

    to achieve returns in excess of 200 basis points above public

    market returns. The proportion of investors that expect their

    private equity investments to achieve returns in excess of 400

    basis points above the public market benchmark has increasedby 17 percentage points since June 2010.

    The vast majority of LPs feel that their investments in the asset

    class have lived up to or exceeded their expectations (see Fig.

    4). The proportion of LPs that feel dissatisfied with the overall

    returns from their private equity investments has steadily declined

    over the last two years, with less than a fifth of LPs interviewed in

    June 2011 saying that their investments in the asset class have

    fallen short of their expectations.

    A number of investors we spoke to are conscious that private

    equity has not yet fully recovered from the financial crisis, and

    others are keen to point out they are being realistic about the

    returns the asset class can achieve. One European investor told

    us: Before the financial crisis, our investments had exceeded

    expectations, but now they are only meeting them. Another LP,

    based in the Netherlands, commented: We would expect our

    private equity returns to be between +2.1% and +4% above thepublic market; this is a risk-adjusted premium and we believe this

    return to be achievable.

    26% 22% 19%

    67%70%

    68%

    7% 9% 13%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Jun-09 Jun-10 Jun-11

    Exceeded Expectations

    Met Expectations

    Fallen Short ofExpectations

    Source: Preqin

    Fig. 4: Proportion o Investors That Feel Their Private Equity Fund

    Investments Have Lived Up to Expectations

    ProportionofRespondents

    We asked the investors we interviewed about the returns they expect rom their private equity portolios, and how they

    eel about the perormance o their existing private equity und investments. Due to the illiquid and long-term nature o

    the asset class, investors maintain high returns expectations, with 70% seeking returns in excess o 400 basis points above

    their public market returns.

    LPs Returns Expectations

    The proportion of LPs that feel dissatisfied

    with the overall returns from their private equity

    investments has steadily declined over the last

    two years...

    2% 0% 1%9% 11% 10%

    26%

    36%

    20%

    64%53%

    70%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    Jun-09 Jun-10 Jun-11

    Publi c Market +4.1% or More

    Publi c Market +2.1 to 4%

    Publi c Market +2%

    Same as PublicMarket

    Source: Preqin

    Fig. 3: Investors Returns Expectations or Their Private Equity

    Portolios

    ProportionofRespondents

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    5 2011 Preqin Ltd. www.preqin.com

    Preqin Investor Outlook: Private Equity

    As Fig. 5 illustrates, 98% of investors expect to make some re-

    up commitments over the next 12 months. A US endowment told

    us: We are being very selective at the moment and will either

    be re-upping with existing managers or approaching managers

    we particularly want to become involved with over the next 12months.

    Building new relationships with investors is also important for

    many fund managers with funds on the road, particularly in the

    current market as investors look to streamline their portfolios.

    Managers seeking commitments from new LPs should be

    encouraged by the fact that a significant 87% of investors will

    consider forming some new GP relationships over the next 12

    months.

    Many investors are also looking to increase the number of GP

    relationships they maintain, as Fig. 6 shows. Over a third (34%) of

    investors expect to increase the number of GPs in their portfolio

    over the longer term, and a further 45% expect to maintain the

    same number of GP relationships in their portfolio in future.

    A noteworthy 21% of investors expect the number of GPs they

    maintain

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