Private equity firms investing in large buyouts are falling out of favor, with 88% of institutional investors in alternatives stating they do not plan to accelerate investment in large buyouts over the next two to three years, according to the latest survey by Coller Capital.
Coller Capital's Global Private Equity Barometer is a twice-yearly survey of institutional private equity investors.
“They (large buyouts) were the darlings of the asset class pre-financial crisis,” said Mike Alfano, principal in Coller Capital's New York office, in an interview. “Now investors are showing less interest in large buyouts.”
Coller, a London-based private equity firm that invests in the secondary markets, defined large buyouts as deals valued at $1 billion or more.
Survey respondents also are not hot on publicly traded private equity firms. Sixty-eight percent of investors surveyed said they find the funds of general partners that have gone public to be less attractive, with only 3% finding the funds of publicly traded general partners to be more attractive. The remainder indicated that whether a private equity firm is publicly traded is not an important or deciding factor.
Meanwhile, investors' private equity returns over the lifetime of their portfolios have dropped. Only 13% of survey respondents indicated they had net private equity returns of 16% or more over the life of their portfolios, compared with 45% who reported returns of 16% or more in 2007.
“The strong return line for private equity has declined since 2007,” Mr. Alfano said. “On an absolute basis, good returns are still being generated and more limited partners are looking to increase their exposure to private equity.”
Indeed, more investors indicated they plan to increase their allocations to private equity and real estate than plan to decrease their allocations over the next 12 months. However, nearly the same percentage of investors plan to decrease their hedge fund allocations as increase them in the same period.
“Hedge fund review is more mixed, while (limited partners) are affirming their commitment to private equity,” Mr. Alfano said.
The survey didn't provide a way for respondents to explain their views on hedge funds, Mr. Alfano noted.
A large majority of survey respondents — 87% —indicated uninvested commitments to private equity funds known as “dry powder” that are approaching the end of their investment periods are causing purchase prices in the private equity market to rise. Sixty-one percent respondents indicated the increase is slight, while 26% called the rise significant.
Alternative investment research firm Arbor Square Associates surveyed 140 private equity investors worldwide for Coller Capital in February and March.