Private equity investors have higher hopes for their returns this year than they did at this time last year, according to a Coller Capital report.
One-third of institutional investors surveyed in Coller's Winter 2010-2011 Barometer, a semiannual report, anticipate annual net returns of 16% or more from their private equity portfolios over the next three to five years, up from 29% surveyed in the winter 2009-2010 report.
Eighty-seven percent of investors expect a net internal rate of return of 11% or more, the survey said.
"Last year was a horrible time for raising private equity," Frank Morgan, president of New York-based Coller Capital U.S., said in an interview. “People feel that 2010 and 2011 will be good vintage years and they expect higher returns.”
Thirty-four percent intend to increase their private equity target allocation over the next 12 months, up from about 18% in last winter's survey. However, the number of investors that plan to decrease their private equity allocations is also up, to 16% from 12%. Last year, the majority of investors, 70%, expected to maintain their private equity allocations during the 12-month period.
“One of the themes of the survey is people are coming back to private equity. They are more selective,” Mr. Morgan added.
Eighty-one percent of those surveyed expect to invest with private equity managers they have not invested with before in the next two to three years, this year's report said. The most cited reason for investing with new general partners is a policy to continue to expand relationships.
At the same time, the percentage of investors that did not re-invest with existing private equity managers continued to grow. Eighty-four percent of North American investors did not recommit capital with existing general partners in the past 12 months, up from close to 80% the last time the question was asked in the Winter 2008-2009 Barometer.
In Europe, 91% of limited partners declined to recommit in the past 12 months, up from 63% two years ago. Seventy percent of investors in the Asia-Pacific region declined to recommit capital with existing private equity managers, up from 52% in the Winter 2008-2009 Barometer.