Study: LP commitments to increase

Good news for GPs on the fundraising trail: more than a third of LPs plan to pour more money into the asset class in the next year, according to Coller Capital’s latest Global Private Equity Barometer.

Approximately 37 percent of LPs said they planned to increase their private equity allocations, while only 14 percent intended to commit less.

Many investors also expect to grow their private equity teams. Half of sovereign wealth funds, 47 percent of insurance companies and 44 percent of asset managers said they would expand their teams in the next 12 to 18 months – a further sign that appetite for the asset class is growing.

“If people are hiring it generally means that the industry is in a better place than it was. Secondly, people are building out their teams because either their private equity programme is growing or the programme is changing,” Stephen Ziff, a partner at Coller Capital told Private Equity International.

What’s more, the increased economic volatility resulting from the global financial crisis has actually made private equity more attractive, according to 44 percent of the surveyed LPs. Only 12 percent of investors think private equity has become less attractive.

The reason why LPs are focusing more and more on private equity is returns, Jeremy Coller, chief investment officer of Coller Capital, said in a statement. “In a low-return world, 86 percent of LPs are forecasting annual net returns of 11 percent-plus from their private equity portfolios and a quarter are expecting net returns of 16 percent-plus. Where else can you get that level of net return with such consistency?”

LPs believe market conditions will be increasingly buoyant in the next few years, according to the study. More than half of LPs think distributions will rise over the next 12 to 18 months, while 42 percent of investors expect their GPs’ investment pace to increase.

Co-investments continue to grow in popularity: 54 percent of LPs have co-invested with their GPs in the last two years, with only one in 11 LPs not offered any co-investment opportunities in this period. However, two-thirds of North American LPs and half of European LPs say they would like to be offered more co-investments, Coller said.

The buoyant credit markets – and the increasing number of dividend recaps taking out by GPs – are not a major concern for investors, the study also found. Two third of LPs believe it is “appropriate at this point in the cycle”, while one in 10 investors think even more capital should be returned by this method. Only a quarter of LPs think the current level of dividend recaps may be storing up problems for the future.