| Private equity, the new alternative darling |
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| 22/07/2007 | |
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As an asset class, private equity is attracting more attention this year than hedge funds. Even as one of the AP funds reduces its exposure to hedge funds, it has increased its private equity weighting. In the UK, the £13.9bn Wellcome Trust, the world's second largest charity, has a remarkably high exposure to alternatives for a European institution: more than 11% of its assets are invested in buyout and venture capital funds, according to a new study on private equity trends by the Economist Intelligence Unit (EIU) and Apax Partners. "With Wellcome's private equity returns averaging 25% over the past 30 years, the strategy is not in doubt." Indeed, the lure of absolute returns is driving some of the interest in private equity. Figures released by the European Private Equity and Venture Capital Association (ECVA) in March 2007 showed that upper quartile buyout funds generated returns of 37.6% in 2006, although the bottom quartile suffered a negative return of 10.2%. In the US, average buyout returns were more than 20%, according to the National Venture Capital Association. Venture Capital, private equity's smaller cousin, has been resurgent. A record €6.5bn was raised in Europe last year, according to Library House, a research company. Long-term trends are equally persuasive: private equity funds on average returned 10.3% annually over the past ten years through December 2006, according to ECVA. Hedge funds less loved The EIU and Apax report also ranks the top ten private equity firms by capital raised over the past five years. At the top of the list is the Carlyle Group ($32.5bn or 5.9% of the total), followed by Kohlberg Kravis Roberts (5.6%), Goldman Sachs (5.6%), the Blackstone Group (5.2%) and TPG (4.3%). Apax Partners, who co-authored the study, ranks seventh (3.4%). The report also ranks countries based on their private equity environment. "There is a perception that private equity is an Anglo-Saxon phenomenon, and this seems to be borne out by the ranking: the US, UK, Canada, Australia and Ireland all feature in the top ten. However, the ranking is not an indicator of overall private equity activity. Inevitably, the lure of large markets such as China and India mean that firms will look to do business in these countries even if the environment is challenging." The US maintains its position as the world's best environment for private equity investment, according to the report, comfortably ahead of the UK. Denmark, the highest-ranking Scandinavian country, is four in the overall survey. "Along with many of the euro zone countries, Denmark has a perfect risk score. It also ranks first for its entrepreneurial environment, usurping the UK. However, Danish pension funds and insurance companies have quantitative restrictions (10%) on their investments in private equity." At the bottom of the list is Turkey and in the middle are France, Belgium and Israel. Turkey has the lowest risk score of the countries surveyed, while in Europe, where eleven countries return perfect risk scores, Germany lies in 12th place, France 15th and Italy 25th. "These economies have less experience of private equity and indeed it is often viewed with suspicion." VB |
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Articles of the same Topic : Alternatives |
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