Preqin’s survey of 215 institutional investors finds that concerns over asset pricing are not dampening plans to invest larger amounts of capital in 2017

2016 Hedge Fund Letters:

Private equity investors indicated that they were very satisfied with the asset class and its performance in 2016 and, as a result, they indicated that they would commit more capital to the asset class in 2017 than the year before. This comes despite the level of unspent capital held by fund managers reaching a record high, with subsequent impacts on asset valuations and dealmaking competition. There are concerns among fund managers that these pressures will affect future performance. However, although some investors have expressed reduced confidence in private equity’s ability to meet their objectives, almost half now expect their portfolios to outperform public markets by more than 4%.

Private Equity & Venture Capital In 2017

Key Private Equity Investor Facts:

  • A record 84% of private equity investors reported that they had a positive perception of the asset class; just 3% hold a negative view.
  • Consequently, 40% of investors will look to invest more capital in 2017 than in 2016, while a further 49% expect to commit the same amount.
  • However, recent strong fundraising means that global private equity* dry powder is already at a record $820bn as of the end of 2016.
  • The influx of capital has increased competition among fund managers for deal opportunities, and pushed pricing upwards: 41% of managers and 70% of investors cite valuations as the primary concern in 2017.
  • These circumstances may partially explain why 14% of investors have reduced confidence in the ability of private equity to meet their objectives, while only 10% have become more confident.
  • Similarly, returns expectations have become more polarised: 6% of investors now only expect their private equity investments to perform at the same level as public markets, the highest proportion since 2012.
  • At the same time, almost half (49%) of investors expect their portfolios to outperform public markets by more than four percentage points, up from 37% and 40% in 2014 and 2015 respectively.

Private Equity & Venture Capital In 2017

Christopher Elvin, Head of Private Equity Products:

“Institutional investors in private equity have been increasingly satisfied with the asset class over recent years, and the vast majority have a positive perception of the industry. This is largely due to private equity’s strong performance and record distributions, which have met or exceeded most investors’ expectations. However, with so much capital flowing into the asset class, there has been a record build-up in dry powder, and many fund managers and investors are concerned with the affect this concentration is having on asset pricing and competition for deals.

Private Equity & Venture Capital In 2017

These circumstances can also be seen in other alternative asset classes, but the response of private equity investors seems to be less cautious than that of real estate or infrastructure investors. In fact, private equity investors are raising their performance expectations, and looking to commit even greater sums of capital in 2017 than they have in the past year.”

Article by Preqin