Investors Get Tougher on Private Equity Funds

It isn’t exactly news that private equity investors want returns. After all, that’s why they commit their capital to these vehicles. As the market recovers from the 2008 and 2009 depths of the global financial crisis, expectations have risen, and alternative investment research firm Preqin reports that demands on private equity portfolios are now “higher than ever before relative to public markets.”

Sixty-three percent of leading private equity investors surveyed by Preqin expect to see returns of at least four percentage points higher than those afforded by public markets, according to Preqin. In December 2007, only 17 percent of respondents had this expectation. An astounding 86 percent expect returns of at least 2.1 percentage points above public markets.

According to Helen Kenyon, Manager, Investor Data at Preqin, “The pursuit of higher returns is leading many to reassess the relationships they have with managers and to become more receptive to new managers than ever before. Preqin’s recent investor interviews also point to a gradual improvement in fundraising for new vehicles: growing numbers will have capital available for new commitments over the next 12-18 months and many intend to ramp up the pace of new investments in 2011.” She adds, “With a higher level of investor capital available, managers that are able to demonstrate a strong track record and a compelling strategy suited to the prevailing market conditions will enjoy more success when seeking commitments in 2011.”

Kenyon notes that there are 1,638 funds already on the road, looking for an aggregate $608 billion in commitments, with more key players likely to enter the market later this year. Expect “competition for LP capital will remain intense.”

[Source: Preqin]



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