Nearly one-half of (49%) of global institutional investors thought private equity assets were overvalued as of June 2024, up from 46% in November 2023, according to Preqin’s latest investor outlook report issued on Aug. 14.
Still, that figure fell below the 53% of investors who considered private equity overvalued back in June 2023 and well below the 66% figure from June 2022.
Looking at investors’ views on future private equity performance, some 45% think the asset class will perform better over the 12 months from June 2024 compared to the prior 12 months, up from 26% who believed likewise for the 12 months commencing June 2023.
Reflecting this short-term optimism among investors, more than one-third (35%) of investors plan to commit more capital to private equity over the next 12 months from June 2024, while 48% intend to commit the same amount of capital over that period.
“Investors are increasingly optimistic about the short-term outlook for private equity,” said Victoria Chernykh, associate vice president-research insights at Preqin. “The percentage of respondents expecting a decline in performance over the next 12 months has halved for the second consecutive year, reaching 12% in our latest survey. These investors consider that the impact of interest-rate hikes on the asset class’s returns is now reflected in the pricing.”
But the report also found that investors are widely concerned about the current slow exit environment for private equity; some 80% investors cite this factor as a major challenge for private equity returns generation for the 12 months from June 2024, up from 65% in June 2023.
A strong majority (65%) of investors said they plan to target pooled single-manager funds over the 12 months from June 2024, up from 59% in June 2023. The second most popular fund structure was co-investments, favored by 52% as of June 2024, similar to the June 2023 figure.
The U.S. remained the most attractive developed market for private equity investors, selected by 87% of investors as of June 2024, continuing a popularity streak going back to June 2021. The U.S. was followed by Western Europe and Japan.
The report noted that Japan has been gaining attention from investors “due to the positive performance of Japanese public equities over the past two years and the Bank of Japan ending its negative interest-rate policy in March this year.”
Within the emerging markets, investors liked India the best, with 58% favoring the subcontinent, up from 45% in June 2023.
In addition, more than half (52%) of respondents said they expected real estate performance to be better over the next 12 months from June 2024 compared with the previous 12 months, marking a dramatic shift in investor sentiment toward this asset class. In June of last year, only 15% held this view. The more optimistic performance expectations now “may be contributing to the increasing interest in real estate secondaries,” Preqin indicated.
A spokesperson for Preqin said the report was based on a survey of 185 institutional investors around the world and was conducted in June 2024.
