PE investors go bigger, but smarter

The latest LP survey conducted by secondary player Coller Capital has found that private equity is attracting more, and more demanding, capital.

Coller Capital’s latest Global Private Equity Barometer, the biannual survey of opinions and future plans of limited partners has found that more institutions are investing in private equity and that those already in the asset class are looking to increase their allocation.

The summer 2005 survey, carried out by research firm Initiative Europe, gathered responses from 104 global private equity investors between February and April this year.

The LP community is becoming more sophisticated and tougher with time

Jeremy Coller, CEO, Coller Capital

Over 15 percent of investors surveyed were planning to increase their allocation to private equity, and more than 37 percent to alternative assets in general. In contrast, less than 10 percent were planning to decrease their exposure to either of these categories.

However, investors are also becoming more discerning with regards to where they put their money. Around 45 percent of respondents globally, and more than half in North America, said that they had declined to reinvest with one or more funds in the last year. Of those exiting existing relationships, more than three-quarters claimed it was to refocus their resources on the best performing funds.

“The LP community is becoming more sophisticated and tougher with time,” explained Jeremy Coller, the chief executive of Coller Capital, in an interview with PEO. “There’s a more general recognition of the difference between the best and worst performing funds. This is reflected in the number of investors experimenting with new GPs, having trouble accessing the best funds, or refusing to re-up.”

The report found that more than two-thirds of investors are planning to commit to new GP relationships over next year, and 52 percent are planning an increase in their total number of GP relationships, compared to only 11 percent planning to decrease them.

Both these trends are partly driven by Asian investors, 73 percent of whom are planning to commit to more GPs and 80 percent of whom are looking to develop new relationships with managers.

Around 43 percent of investors were unable to access all the funds they wished to over the last 12 months. North American investors cited funds that had already closed as the largest cause of this trend, while internal resource constraints was the key problem for European and Asian investors.

Terms and conditions was also a key factor in Europe, cited by 38 percent of European LPs. More than two thirds of investors believe that, for funds raised over the next twelve months, in every region and type of investment these terms will be similar to those of existing funds. However, in every sector except North American buyouts, the majority of those who do anticipate change expect it to be in favour of LPs.

Europe is currently the source of both the most and least attractive sectors for LPs. Respondents cited the European buyout market, particularly in Central and Eastern Europe and Germany, as the most attractive sector over the next twelve months, while European venture is still at the bottom of the table.