4 December 2007

Coller Capital Global Private Equity Barometer – Winter 2007-08

Over half of private equity investors (LPs) – and over three quarters of North American LPs (78%) – believe the credit markets’ recent difficulties signal the end of the global buyout boom, according to Coller Capital’s latest Global Private Equity Barometer. Half of LPs (48%) believe North America will be harder hit than other regions of the world by a private equity downturn.

Click here to download the Global Private Equity Barometer

  • European and North American investors divided on the need for greater industry transparency
  • Return expectations for Asia-Pacific PE and North American venture continuing to rise
  • 96% of private equity investors plan increased commitments over the next 3 years

Transparency (as recommended in the Walker Report)

Differences in the business climate between North America and Europe are evident, too, in investor attitudes to transparency in private equity. Over half of European LPs (56%) believe private equity fund managers (GPs) should be accountable to a wider group of stakeholders on their large portfolio companies (as recently recommended by the Walker Report in the UK). However, only one third of North American private equity investors agree.

Pace of GP investment

LPs are far less optimistic about the pace of GP investment than they have been in recent years. Half of investors believe the pace of GP investment will slow over the coming year, compared with fewer than 10% of LPs in the winters of 2005 and 2006.

Future prospects and investor appetite for private equity

In the medium-term, however, investors’ private equity return expectations remain strong: two in five LPs (39%) expect net returns of 16%+ over the next 3-5 years – and this proportion rises for specific types of private equity. For example, two thirds of LPs (65%) expect returns of 16%+ from North American venture capital and three quarters of LPs (73%) from Asia-Pacific buyouts.

These figures explain why, despite a more downbeat assessment of the short-term outlook for private equity, there has been no diminution in investor enthusiasm for the asset class. Over the next 3 years, almost all LPs (96%) plan to increase their private equity commitments and three quarters (78%) plan to increase their number of GP relationships.

New markets

Investors are continuing to grow their exposure to private equity’s less developed markets – the proportion invested in emerging private equity markets has jumped from 26% two years ago to 40% today.

Asia-Pacific buyouts again top the Barometer’s league table of attractive places for GP investment, and Asia-Pacific venture has risen from 5th place to 3rd over the last 12 months. India and China are running neck-and-neck as the most attractive individual markets, with Central & Eastern Europe coming third.

Commenting on the Barometer’s findings, Jeremy Coller, CEO of Coller Capital, said: “Most private equity investors think the benevolent conditions of the last few years will not return in the near future, but this has not shaken their commitment to the asset class. This is because they know private equity’s ability to build and enhance businesses does not depend ultimately on cheap money.”

Other topics covered in this edition of the Barometer include:

  • The barriers to investment in private equity’s emerging markets
  • Investors’ reactions to the recent controversy surrounding private equity
  • Direct investment in private companies by LPs
  • The willingness of LPs to invest with newly-established GP teams
  • The outlook for the terms and conditions of private equity funds
  • The potential of, and challenges facing, European venture capital

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