Institutions Warm Up to Private Equity

December 19, 2001 ( - Exposure to alternative investments by institutional investors has increased significantly over the last decade, as managers worldwide increase their holdings in a bid to boost returns, according to a survey by Goldman, Sachs & Co. and Frank Russell Company.

The survey is the groups’ fifth global report on alternative investing by tax-exempt institutions – which include public and corporate pension funds, endowments and foundations around the world.

The report shows that total assets committed to private equity by survey respondents increased from US$169 billion in 1999 to over US$246 billion this year. 

  • North American assets increased from $152 billion to $220 billion,
  • in Europe, where more institutions were surveyed in 2001 than in 1999, assets rose from $14 billion to $23 billion
  • private equity assets in Australia were up just slightly, and
  • in Japan, which was surveyed for the first time, private equity assets totaled $133 million

Alternative Allocations

According to the research, average strategic allocations to private equity also continued to grow from 1999 levels in all regions, with

  • private equity representing 7.5% of total fund  assets in North America, up from 7.3%
  • European private equity comprising 3.6% of fund assets, up from 2.5%, and 
  • Australian commitments accounting for 6.5%, up from 6.3%

And money managers worldwide expect this allocation to grow, in fact in 2003,

  • European respondents expecting their strategic allocations to grow from 3.6% to 4.3%, 
  • North American money managers project the allocation to increase to 8.1%, from 7.5%, 
  • while Australian respondents expect their private equity allocation to grow to 7.2% from 6.5%

Foreign Affairs

Investing outside the home country or region is on the up, according to the research, with North American respondents reporting that 17% of their private equity investments held abroad, predominantly in Western Europe, up 3% from the 1999 figure.

Across the pond, UK respondents are investing increasing amounts in North America, away from the Western European market they favored in 1999, while those on the continent have trimmed their North American exposure and turned to global fund commitments.

Hedging Bets

The research also revealed that Japanese respondents favor hedge funds over private equity, with only 3 out of 44 respondents there reporting investment in private equity. In Japan, while only $133 million is committed to private equity, some $665 million is invested in hedge funds

Elsewhere, North American and European commitments to hedge funds total $12 billion and $2 billion, respectively.

The survey target list covers pension funds and foundations and endowments with assets of US$3 billion or more. The 2001 survey results are based on the detailed information provided by 346 organizations in North America, Europe, Australia and Japan.