More than half (54%) of private equity investors were surprised at the degree of correlation between private equity and the stock market during the financial crisis, according to the summer edition of Coller Capital's Global Private Equity Barometer released Monday.
Thirty-eight percent indicated that private equity correlation with the public markets was as expected and 8% stated it was less correlated than expected.
Two-thirds of European investors were taken by surprise compared to 46% of North American investors and 42% of Asian Pacific investors.
The financial dislocation that was due to such an unusual array of factors made the correlation between private equity and the public markets counterintuitive for some investors, said Frank Morgan, president of New York-based Coller Capital U.S.
Meanwhile, 38% of investors that responded to the biannual survey expect that 10% to 20% of existing general partners will be unable to raise a new fund in seven years and will fail. Twenty-four percent expect that 21% to 30% of firms to fail; 19% expect that more than a third of existing firms will fail to raise a new fund; and another 19% expect that up to 10% of existing private equity firms will fail.
Eighty-seven percent of survey respondents expect not to reinvest with current private equity managers in the next 12 months. The top reason, cited by 84% of that group of investors, was poor performance of a general partner's last fund. That was also the most popular reason cited by respondents to Coller's winter 20009-2010 survey.
However, there were regional differences in reasons for not reinvesting with existing managers. Some 59% of North American investors indicated that limited partner capital constraints were a reason for declining to reinvest, while 18% of Asia-Pacific investors indicated capital constraints as a reason.
"There's a fundamental change in private equity that we are witnessing now," Mr. Morgan said in an interview
“That's a big change from the go-go days. Now we have this view that, more than ever, limited partners will not re-up with their managers and one out of five will go out of business," Mr. Morgan said.