Private Equity Fund Investors

Barometer of Private Equity Fund Investors

Three quarters of private equity investors expect distributions in their portfolios to decline in the next year. This is the most pessimistic estimate since the Global Private Equity Barometer began surveying limited partners in 2004. Private equity investors expect to net considerably less returns on investments. The report found that 37% of limited partners now report overall net returns of 16% or more from the asset class, compared with a high of 45% of LPs in Summer 2007.

The most troubling finding, I thought, was that "for the first time in years, a significant number of private equity investors are planning to decrease their target allocation to private equity – 20% of LPs plan a reduced allocation in the coming year." That compares to about 3-6% in previous Barometers. On the flip side, private equity investors remain committed to the asset class generally. 80% plan to maintain or even increase their target allocation in the next 12 months. However, the expected flight of LP's from private equity is worrying for private equity firms fundraising.

General Partner-Limited Partner Relations

One third of limited partners expect to reduce their number of general partner relationships. Similarly, 84% of limited partners have declined to re-invest with one or more of their existing GPs over the last 12 months--almost twice the number of LPs who refused re-investing in the summer of 2005. This suggests a major decline of investor confidence in their general partners.

Many limited partners appear to be using the economic downturn to their advantage, seeing the poor performances by many private equity funds as a bargaining chip in negotiating terms. "Around four fifths of LPs believe the terms and conditions of buyout funds worldwide will become more favourable to them over the next two years. Two thirds (65%) of LPs foresee more
favourable fund terms for venture funds." Also, about a tenth of private equity limited partners are expected to default on capital commitments--with defaults concentrated mostly in North America.

For the full report click here.


Tags: Private Equity Barometer, Private Equity Fund Investors, Private Equity Limited Partners, Private Equity General Partners, Private Equity Partners, Private Equity investments

Link to This Resource: Private Equity Fund Investors

http://privateequityblogger.com/2009/06/private-equity-fund-investors.html