Another part of the appeal for U.S. investors is investment performance. U.S. private equity funds have outperformed both the Nasdaq and Standard & Poor's 500 indexes for the five-, 10- and 20-year periods ended Sept. 30, according to data from the National Venture Capital Association and Thomson Venture Economics.
Private Equity Intelligence's bullish forecast is based on the culmination of several factors, including the flow of money returning to investors. The other factors are:
• Some 508 new funds are already on the road raising money.
• Established fund managers are expected to raise money for up to 380 follow-on or next-generation funds in 2005.
• Most institutional investors are below their target allocations. "We calculate that the average LP (limited partner) is only actually at 72% of their target," Mr. O'Hare said.
The average private equity allocation (including venture capital and mezzanine investments) of North American corporate pension funds is 7.6%; endowments, 9.5%; family offices and foundations, 10.1%; and public pension funds, 6.1%, PEI data showed.
Most of the money flowing into the asset class worldwide is from North American institutional investors. Allocations by institutional investors in Europe and Asia are 25% to 50% lower than those in the United States and Canada, according to the research.
Likewise, most of the fund raising is by North American general partners. Some 314 funds seeking a total of $95.2 billion are in the fund-raising stage among North American firms.
Of the total, the biggest chunks of money are being raised for buyout funds (about 45%) and venture funds (about 25%).
PEI's report also showed the increasing global nature of private equity investing. For example, only 20% of North American investors restrict their activities to North American funds. Some 14% consider only North American and European funds; the remainder will invest anywhere on the globe.
Meanwhile, with all the money expected to flow into the asset class, is it too much of a good thing?
"That's the $64,000 question," Mr. O'Hare said. "Personally, I don't think so. Despite their appetite, (limited partners) are careful when committing funds, and (general partners) are equally careful when investing, as most of their gain comes from the carry, not the fee."
PEI executives analyzed the data on about 4,000 global private equity funds from 2,800 private equity investors worldwide, with a combined target allocation of more than $800 billion The information was obtained largely through published reports, as well as Freedom of Information Act requests to pension funds, endowments and foundations.