Preqin Research Report© 2010 Preqin Ltd. www.preqin.com
Private Equity Investor Survey
Preqin Special Report: Private Equity Investor Survey
The private equity industry entered a more challenging periodwith the onset of the
nancial crisis, with fund valuations fallingand a dif
cult exit environment leading to a drop in distributionsfrom funds. Although some recovery has been seen in theperformance of private equity funds, investors’ views of theasset class were affected. Whereas in December 2007 just 2%of LPs were dissatis
ed with the returns they received from theirprivate equity investments, in June 2010, 21% felt that theirprivate equity investments had fallen short of their expectations,though as we have seen, their return expectations haveincreased in comparison to public markets during this period.The majority of LPs, however, feel that the returns they arereceiving from their private equity investments have met theirexpectations. A well-known Asian investor told us, “Overall, ourprivate equity investments have met our expectations; since the
nancial crisis, our funds have under-performed but before thecrisis they out-performed so overall it has been alright.”
Secondary Market and Direct Investments
Some of the more experienced private equity investors, and/orthose with greater resources at their disposal, have started todivert an increasing proportion of capital that previously wouldhave been used for fund commitments to direct investmentsin private companies instead. Our recent survey found that38% of investors set aside a proportion of their private equityportfolios for direct investments, either on a proprietary basisor as co-investments alongside GPs in their portfolios in selecttransactions.Of these LPs, 61%, or 23% of those polled overall, investdirectly in private companies on a proprietary basis. For someof these investors, such investments have always formed partof their strategies; however, for others, direct investments arebecoming a core part of their overall private equity investmentstrategies. Alberta Investment Management Corporation(AIMCo), for example, has decided to make more direct andco-investments going forwards but will still seek to make fundinvestments in sectors and regions in which it does not makedirect investments, such as vehicles targeting distressedopportunities or Asia.Of the LPs that invest directly, 76% (or 29% of all LPs polledin the survey) seek to make co-investments alongside GPs.Saplings Alternative Advisors, a hybrid fund of funds manager,engages in co-investments to enhance returns, produce earlierliquidity and to mitigate the double layer of fees faced by itsclients.Such investments are on the rise: a considerable 61% of surveyparticipants that have an allocation to direct private equityinvestments intend to increase the level of their activity in directinvestments during 2011 compared to 2010, as shown in Fig. 4.(This chart shows only the intentions of investors that are activein the secondary market and/or invest directly in companies.)Just over a quarter (26%) of investors that make directinvestments in companies, however, are looking to decreasetheir activity in this area in 2011 in comparison to 2010.The private equity secondary market is also continuing to attracta signi
cant degree of attention from investors that are seekingto purchase stakes in funds. As Fig. 4 shows, almost a thirdof institutional investors (32%) that are active as purchasersof fund interests on the secondary market are intending toincrease their activity in this area in 2011 in comparison to 2010,and a further 45% intend to maintain the level of their activity.
Fig. 3: Have Investors’ Private Equity Fund Investments Lived upto Expectations?
P r o p o r t i o n o f R e s p o n d e n t s
32%61%45%13%23%26%0%10%20%30%40%50%60%70%80%90%100%Secondary MarketPurchasesDirect Investmentsin CompaniesDecreaseAllocationMaintainAllocationIncreaseAllocation
Fig. 4: Investors’ Expectations of the Level of Both SecondaryMarket and Direct Investment Activity in 2011 Compared to 2010
P r o p o r t i o n o f R e s p o n d e n t s A c t i v e i n E a c h A r e a