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Private Equity

High valuations, dry powder cited as biggest concerns for private equity investors

The top concern for consultants and asset owners that invest in private equity in 2018 is high portfolio company valuations, according to a survey by eVestment released Wednesday.

Valuations were indicated as a top concern by 60% of those surveyed, up from 48% in 2017, which was also the top concern. Dry powder was the second most cited concern with 40%, up from 26% last year.

Even so, 21% of investors and consultants expect to increase their private equity allocations, 16% anticipate upping private debt, 12% each expect to increase their venture capital and infrastructure allocations, and 7% to increase their real estate allocations.

By comparison, 16% of investors and consultants plan to decrease their private equity allocation, 14% plan to reduce real estate, 12% private debt, 5% venture capital and 2% infrastructure in 2018.

Some 36% of investors and consultants indicated that they never or rarely trust the performance data provided by the alternative investment fund managers. Some of the reasons respondents gave for this view included a distrust of unrealized valuations during fundraising and the experience of finding errors, albeit not often material. What's more, 47% of investors and consultants always recalculate fund managers' track records when conducting due diligence and 28% often recalculate alternative investment managers' track records.

A mere 6% of alternative investment fund managers and 5% of investors and consultants indicated that environment, social and governance is an extremely important aspect of due diligence, landing it at the bottom of the seven factor list. Team was at the top of extremely important aspects of due diligence, for both managers — 81% — and investors and consultant, at 79%.

eVestment surveyed investors and consultants worldwide in late 2017 and early 2018. Respondents' institutional assets under management and administration totaled more than $4.3 trillion and their aggregated alternative investment assets under management and administration was about $580 billion. eVestment received about 100 responses, with about a 60% investors and 40% consultants.