17 January 2007

Coller Capital Global Private Equity Barometer – Winter 2006-07

Return expectations of private equity investors reach record levels

Click here to download the Global Private Equity Barometer

  • LPs plan significant further growth in private equity allocations
  • Investors worldwide converge on ‘recipe’ for private equity success
  • Two early signs the private equity boom may be plateauing

The return expectations of private equity investors have strengthened significantly over the last 12 months – almost half of LPs are now forecasting medium-term returns of 16%+, according to Coller Capital’s latest Global Private Equity Barometer, compared with just one third of LPs in the Barometer for Winter 2005-06.

LP satisfaction has also reached unprecedented levels. An astonishing 97% of investors are pleased with their private equity returns over the last year – and the proportion of investors reporting themselves very pleased has more than tripled in the last two years, to 56%.

As a result, investors intend to continue pouring money into the asset class: 49% of LPs are planning increased allocations to private equity over the next 12 months, and 57% plan the same for alternative assets generally.

The Barometer also explored the factors LPs see as important to their own success as investors in private equity funds. Critical to an LP’s success are the following characteristics (in order of importance):

  • The length of time an LP has been investing
  • The stability and incentivisation of its investment team
  • A proactive approach to building and managing GP relationships
  • Critical mass in the investment programme – expressed either in investment team size or in number/aggregate value of fund commitments.

Overall, LPs see their location as relatively unimportant to their chances of achieving top-notch returns.

This edition of the Barometer contains two signs that the private equity boom may be approaching a plateau:

  • A significant proportion of LPs believe the exit environment for European and North American buyouts (two of the biggest drivers of returns in recent years) will deteriorate over the next year or two – 43% and 44% of LPs hold this view for the two markets respectively.
  • Although on balance distributions are expected to remain strong, there is no longer a majority of LPs expecting distributions to improve – as there was in the Winter Barometer last year and the year before.

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