Institutional investors and private equity fund managers worldwide expect industrywide private equity returns to drop by five percentage points or more over the next few years — though many don’t see their own portfolios taking a loss, according to a survey by investment consultant bfinance.
While 66% of investors expect private equity returns to drop between five and 10 percentage points, and another 6% expects a decline of more than 10 percentage points, 73% of private equity managers foresee a five- to 10-percentage-point decline, while another 12% expect returns to fall 10 percentage points or more.
Still, 54% of investors and 69% of managers believe their own portfolio returns won’t drop at all.
“Hardly any fund manager expects to be affected in their own portfolio,” said Lorenzo Rossi, managing director of private equity at bfinance in London. Managers “clearly are overoptimistic” about return prospects of their own funds, but “that’s probably normal in marketing a product,” Mr. Rossi said.
Also, 71% of investors plan to reduce the number of managers and funds to create more concentrated portfolios as a way to avoid lower returns from less-skilled managers.
“There continues to be plenty of good individual investment opportunities that achieve annual returns of above 20% (in net IRR terms) at the company level,” Mr. Rossi said. “Unfortunately, pension funds allocating (broadly to private equity) will most likely be disappointed.”
The survey of 49 institutional investors and 31 private equity managers from around the world was conducted in November and December.