In an IPE private equity survey of European pension funds, to say the results are diverse is something of an understatement and reflects the extent of how private equity allocations are unique to the individual pension fund investor. Though there are some trends which apply across a vast majority of the respondents.
Out of the respondents, 45% are actively investing in private equity with a total average allocation of 10.9%, but this is by no means typical of the funds who responded to the survey – the spread of allocations range from 0.05% through to 32%, with just under 50% of respondents who invest in private equity allocating less than 2% to the asset class. Just over 20% of respondents invest between 5-10%, with the remaining 30% investing in excess of 15% in private equity.
For those pension funds actively invested in private equity, 69% intend to up their allocations to the asset class over the next five years, with the largest contingent coming from the lowest investing category - of the 50% of those respondents who have less than 2% allocated to private equity, 83% intend to increase their allocations in the next five years. In the upper categories, one third of those investing between 5-10% intend to increase exposure with the remaining two thirds intending to maintain the same allocation over the next five years, and of the more aggressive investors in the 15% and over category, 75% of them intend to invest even more over that time frame, with 50% of those investors planning to invest a staggering 40-45% over the next five years.
Expectations on returns vary from fund to fund, though 41% anticipate returns of between 5-10%, and a third of respondents expecting more attractive yields of between 15-20% on their investments. A number of respondents were not as specific in terms of percentages and stated that they were simply expecting between 3-6% over and above their equity market returns.
In terms of geographical breakdown, the mean results are somewhat more indicative of the asset allocation norm. Of funds invested, the average allocation to domestic assets is around 67%, with approximately 33% invested internationally. Of these assets, not surprisingly, the majority is outsourced to external managers – just over 86%.
Out of the 55% of repsondents who are not active in the private equity market, more than 75% of them are pretty convinced that is the way their investment strategy is going to stay. Of the 23.5% of respondents who are intending to invest in the asset class, they are not in any hurry with only 25% of them intending to make this investment in the next two years. However, once those investors who signalled they are intending to invest whether it is within two years or five years, the expected allocations over the next five years are promising ranging between 2-5%.
Another aspect which is promising in the non-invested category, is of the 76.5% of respondents who stated they were not considering investing in private equity, and none of whom committed to investing after two years, 15% of them suggested that allocations would be made over the next five years.