| Investors hungry for private equity in 2006, but beware of lower results |
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| 05/02/2006 | |
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Industry observers report that investors will continue to be keen on private equity in 2006, but that they shouldn't expect 2005-like returns as the doors of the best funds are increasingly likely to be closed to them. According to Coller Capital, which runs a twice yearly global private equity barometer, there has been a steady rise in the appetite of investors for private equity. Their last global barometer in June 2005 showed that less than one-third of private equity investors planned to increase their allocation. Six months later, 44% plan to raise their private equity stakes. The intention appears to be most marked in Europe and Asia, where the average private equity allocation is currently lower than the average US allocation. However, investors expecting the same level of returns as 2005 might be setting themselves up for a big disappointment in 12 months time. This is due to the fact that as private equity allocations continue to grow in every region of the globe, top-tier private equity funds, which are likely to churn out the highest return, just won't keep up the pace. "As a result of increased demand for private equity and a lack of quality investment managers in the market, slots in top funds were hard to come by", says Caroline Boutar, a consultant at Mercer Investment Consulting. "There has been a power shift. We're seeing fewer examples of limited partners achieving investor-friendly terms. By contrast, there are more examples of general partners compressing fundraising schedules and insisting on solid commitments before limited partners complete formal due diligence." All in all, Mercer says that the US market is robust, as is the European market. "Within non-US markets, European private equity managers within the buyout sector have raised large sums of assets and face similar issues to those in the US", points out Sanjay Mistry, a London-based senior consultant with the group. This has had positive effects on the European markets, where, he says, limited partners allocate about half of their total private equity investments. "Although the UK and Scandinavia markets are relatively familiar with private equity, other European markets are opening slowly to private investors, especially when one considers that European businesses operate at lower enterprise values." J.L. |
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Articles of the same Topic : Private equity |
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