Institutional Private Equity Investors Smile Despite Bear Market

According to the survey of 100 of the most active institutional private equity investors – half in North America and half in Europe – a “significant number” plan to step up their PE allocations over the medium term with the private equity investors reporting they were happy with their long-term PE performance so far. The investors surveyed by AltAssets, a London-based research firm, represent more than $100 billion of commitments.

Even though the level of contentment was high, that doesn’t mean the private equity investors were standing pat. According to AltAssets, investors are relatively far along in cutting their risk levels by making adjustments in both sector and region.

Specifically, more private equity money is headed across the pond – particularly toward the European mid market. There, AltAssets said, funds in the region should expand their share of total commitments to around 30% over the next five years from the present level of about 25%. Meanwhile, US funds will see their share drop to around 60% from the current level of 65%. The sample is expected to account for an extra $7 billion of capital targeting new European funds and only $3 billion extra for US funds.

Despite the bear market during the last few years, some 42% of European institutions and 24% of North American institutions said they planned to beef up their private equity position in the next 24 months to take advantage of expected positive market returns.

There has been a clear shift over the last two years away from venture capital towards what are perceived to be the safer segments of the asset class. About 25% of institutions in both regions said they had cut their venture exposure, while nearly a third had increased their allocation to funds investing in mezzanine and special situations. Nearly 30% had upped their commitments to buyout funds.

Those participating in the survey included public pension funds, corporate pension funds, banks, insurance companies, asset management firms, insurance companies, funds of funds, publicly funded investment bodies, foundations and endowments, and large family offices. Interviews and questionnaires were completed between May and July 2003.

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