Private equity fundraising improved in 2012, with the amount of aggregate capital raised by closed funds increasing from $312bn in 2011 to $327bn in 2012, an encouraging sign for the industry. However, the number of funds closed fell from 911 funds in 2011 to 761, indicating limited partnerships (LPs) are now often placing more capital with fewer managers.
According to Preqin (alternative asset industry intelligence firm), the majority (60%) of LPs made new private equity commitments in 2012. However, this is a drop from the 66% of LPs that committed capital to funds in 2011 and suggests many investors still remain cautious in the current financial climate.
Investment Activity by Region
The level of investment activity in 2012 varied among investors in different locations. Certain investors, primarily banks and insurance companies, located in North America and Europe have become increasingly restricted in their investment activities due to stricter regulations, requiring them to re-evaluate their investments in the asset class.
Asia and Rest of World-based investors were the most active, with 67% of the LPs in this region making new commitments. In contrast to tighter regulation in developed markets, LPs based in Asia and Rest of World have seen restrictions on their investments decrease in recent years. Furthermore, investors based in Asia and Rest of World have become increasingly experienced in investing in private equity and now represent a significant source of capital to fund managers.
Investors Above, At or Below Their Target Allocations
The proportion of LPs below their target allocations to private equity has gradually decreased since 2009. As shown in Fig. 3, almost half (45%) of LPs were below their target allocations to private equity in December 2009, following the onset of the global fi nancial crisis. This decreased to 28% in December 2012. The vast majority (57%) of LPs are at their target allocations to the asset class and 15% of LPs are over-allocated to private equity.