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Investor caution may dampen PE funding

Investor caution may dampen PE funding
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First Published: Mon, Jun 20 2011. 09 57 PM IST
Updated: Mon, Jun 20 2011. 09 57 PM IST
Bangalore: One-fifth of all private equity (PE) fund managers globally will struggle to raise money in the next few years as investors have become wary of those without a proven record or sector specialization, according to a Coller Capital report.
It also predicts a resurgence in secondary sales—in which investors sell their PE assets to other investors.
About 43% of the 110 investors surveyed, known as limited partners (LPs), expect at least 20% of all PE fund managers, known in the industry as general partners (GPs), to be unable to raise a fund within the next seven years, Coller Capital said in its biannual Global Private Equity Barometer report, which was released on Monday. About 38% of LPs expect 10-20% of the GPs to fail.
Indian GPs may not face the same hurdles.
Also See Lowered Expectations (PDF)
“Given that India is a market with a very strong growth story and one where most GPs are still fairly new, I think it would be surprising if the GP failure rate in India was as high as this in the short term,” Hiro Mizuno, partner, Coller Capital, said over the phone from Japan.
Coller Capital conducted the survey in North America, Europe and Asia-Pacific.
Still, investor confidence in private equity as an asset class remains strong. One-fourth of the LPs surveyed said they will increase their allocations to PEs in the next 12 months.
Two-thirds of the LPs see significantly more opportunities for PE firms to sell their stakes in portfolio firms to rival companies, fetching handsome returns for the investors.
With portfolio companies recovering from the economic crisis of 2008-09, nearly two-thirds (62%) of all LPs can report lifetime net returns of 11-15% or higher, from investments in PE funds, compared with 49% of all LPs in 2010, the report said.
Further, LPs’ dependence on GPs may decrease in the coming years as they begin to look at expanding their own PE teams, the Coller Capital report said.
As many as 32% of the LPs surveyed plan to increase the size of their PE teams over the next two years. About 47% of the public pension funds (which are limited partners) surveyed expect to hire more private equity professionals; one-third of asset managers and banks and 41% of insurance companies plan to augment their private equity teams over the next two years.
As for secondary sales, investor interest in these has reached unprecedented levels, it said.
At least one-third of the North American LPs surveyed, a quarter of the European investors, and as many as 42% of those from the Asia-Pacific region plan to sell their PE assets to other LPs in the next two years.
Besides, LPs are also interested in buying assets or investment commitments from secondaries market to reshape their portfolios.
Plans for secondary sales show the scale of change in the PE landscape, Jeremy Coller, chief investment officer and a partner at Coller Capital, said in a statement. “When you also look at the proportion of investors looking to buy secondaries; the flood of money targeting new private equity markets; and the accelerating pace of recruitment within LP institutions, it’s clear we are working in a rapidly evolving industry.”
Deals India, published jointly by Mint, Dow Jones Newswires and The Wall Street Journal, is a one-stop destination for investment professionals following deal flow, deals news, private equity and venture capital activity in India.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Mon, Jun 20 2011. 09 57 PM IST