22 November 2004

Coller Capital Global Private Equity Barometer – Winter 2004-05

Institutional investors target higher private equity exposure and new GP relationships, but warn on manager terms and conditions.

Click here to download the Global Private Equity Barometer

Institutional investors plan to put more money into private equity and hedge funds in 2005, according to the first Global Private Equity Barometer, published by Coller Capital, the leading investor in private equity secondaries – but at least a quarter of investors (LPs) in venture capital and buyout funds across North America, Europe and Asia-Pacific expect improved terms and conditions from private equity fund managers (GPs) in return. The proportion of LPs expecting more favourable terms and conditions rises to 37% for European venture funds and 41% for generalist funds and funds-of-funds.

Coller Capital's Global Private Equity Barometer is a unique snapshot of worldwide trends in private equity – a twice-yearly overview of the plans and opinions of institutional investors in private equity (Limited Partners, or 'LPs') based in North America, Europe and Asia-Pacific.

The Barometer found that more than half of institutional investors in private equity (56%) expect to increase their exposure to alternative assets overall during the next year, with 43% expecting to increase their allocations to private equity and 45% planning to do the same with hedge funds. The good news for 2005 fund-raisers is that more than half (53%) of LPs expect to increase the number of their GP relationships, with this figure rising to 62% among Asian LPs. Buyout funds are likely to be the biggest beneficiaries of this positive sentiment. The Barometer shows that LPs are more pleased with their recent returns from buyouts than from venture – around 90% of investors said that they were "satisfied" or "very pleased" with their American and European buyout returns (satisfaction with Asian buyout returns being slightly lower), compared with only around 60% of LPs saying the same thing for American, European and Asian venture returns.

Moreover, when asked where the best opportunities for investment by GPs would be over the next year, LPs offered the following ranking: European buyouts, Asian buyouts, American buyouts, American venture, Asian venture, European venture.

Buoyant investor sentiment about private equity is best quantified by looking at LPs' medium-term return expectations. The Barometer found that, overall, three quarters of private equity investors expect to achieve net portfolio returns of 11-20% over the next 3-5 years, with half of LPs expecting returns of 11-15% and a further quarter expecting returns in the 16-20% range. As for returns from different kinds of private equity fund, investors broadly expect returns in the 11-20% range from buyout funds in all three regions and from North American venture funds; for Asian and European venture funds expectations are lower.

Commenting on the findings, Jeremy Coller, chief executive of Coller Capital, said: "The Barometer not only shows institutional investors increasing appetite for private equity, it also demonstrates investors' understanding that private equity is an activity where manager skill makes a real difference in the medium-to-long term. This understanding can only be beneficial to the continuing development of private equity as an asset class."

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