The large number of European funds coming to market during the next 12 months might be good news to institutional investors worldwide interested in expanding their private equity allocations.
A number of European pension funds are beginning to increase their allocations to private equity or are starting new ones, with some looking to bump their allocations to as much as 4% (from an average of 2% now) during the next year, said Tim Green, senior partner of GMT Partners, a London-based private equity firm.
For example, the €16.5 billion ($20.45 billion) Fonds de Reserve pour les Retraites, Paris; 43 billion Danish krone ($7 billion) labor market pension plan, Pen-Sam, Farum, Denmark; and €1.6 billion %D6;PAG Pensionskassen Aktiengesellschaft, Vienna, are all said to be investigating initial or expanded private equity allocations.
Meanwhile, many U.S. institutions are interested in investing in European private equity because of the returns. In the year ended Dec. 31, the private equity net return for U.K. private equity was 12.3%, the five-year return was an annualized 10.2%, and the 10-year return, an annualized 14.2%, according to the London-based British Venture Capital Association's performance measurement survey. The United States has lagged at an annualized 2% for the five years, according to Hamilton Lane Advisors, Bala Cynwyd, Pa.
An increasing number of U.S. investors now have international private equity allocations, said Joseph F. Gieger, managing director, U.S. of Lombard Odier Darier Hentsch Inc., New York.
"The European buyout market is attracting a large number of institutional investors, as the markets in Europe are still structurally 10 years behind the U.S.," Mr. Gieger said
In June, the firm closed its $260 million EuroChoice II. Among the U.S. investors in the fund are the $4.6 billion ITT Industries Inc. pension fund; $1.94 billion pension fund of Avaya Corp., Basking Ridge, N.J.; and the $480 million Plymouth County (Mass.) Retirement System.