The private equity institutional investor universe is made up of a diverse range of investor types, each with different allocations and expectations of the asset class. Encouragingly for private equity fund managers looking to source fresh capital in the year ahead, there is a wealth of different investors actively searching for new fund investments over the next 12 months.
Types of Investors Seeking New Investments
Public pension funds have consistently issued a large proportion of mandates each quarter. With historically low interest rates, traditional asset classes have become increasingly less appealing to public pension funds, and in order to meet their annual returns targets, they are allocating more capital to private equity. The $51bn pension fund is looking for up to 10 new private equity funds to commit to within the next year, and anticipates committing between $500mn and $1bn in total to the asset class. Foundations and endowments have also accounted for a large proportion of fund mandates issued over the past four quarters, in particular in Q2 2012 and Q4 2012, when these investors accounted for a combined 28% and 29% of all new fund mandates issued in these quarters respectively.
How Much Capital Can We Expect to Flow into Private Equity?
43% of investors planning to commit fresh capital to private equity funds over the next 12 months are looking to commit up to $49mn. A third of LPs expect to commit between $100mn and $499mn to the asset class over the coming year, while a further 7% plan to commit more than $500mn to new private equity funds, indicating that a number of LPs are looking to commit large sums of capital to the asset class in the year ahead. Thirty-one percent of investors that plan to make new commitments over the next 12 months plan to make one or two new private equity fund investments, while a further 37% are seeking to commit to three to fi ve new private equity funds. A fi fth of mandates issued by investors in the past 12 months are solely for funds being raised by existing managers within their portfolio, as shown in Fig. 3, which can save LPs both time and resources. However, automatic re-ups are a thing of the past and GPs now have to look increasingly further afi eld for new investors. Nevertheless, 67% of investors that issued fund searches in the past year are considering allocating a portion or all of their capital to new managers, with many LPs looking to do so in order to gain exposure to a new strategy or geography. A further 13% are approaching fund manager selection opportunistically.
Private Equity Fund Types Sought in the Year Ahead
Two-thirds of LPs that have issued fund mandates in the past 12 months have indicated a preference for buyout funds in the year ahead. Venture capital funds are being sought by over half (55%) of LPs looking to make new fund commitments in the year ahead, while 45% of investors have stated growth funds as a preference for future private equity fund investments. Thirty-six percent of investors looking to make new investments over the next 12 months have stated a preference for distressed private equity vehicles.