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Investors see opportunities in secondary private equity

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GLOBAL - Most institutional investors intend to either maintain or increase their allocation to private equity in 2010, according to research by SL Capital Partners.

However, the perception study of 44 investors in Europe and North America, including 23 institutions, also revealed that only 25% of those instututions definitely plan to increase their exposure to private equity as an asset class.

The survey showed 89% of respondents intend to increase or maintain their current level of exposure. And in particular, investors highlighted smaller mid-market buyouts/growth capital, secondaries and distressed/special situations as the most attractive private equity sub-strategies.

Almost two-fifths of investors, 39%, said they would increase their allocation to secondary purchases of private equity funds over the next 12-18 months depending on available deals.

In addition, 38% of the private equity fund managers interviewed claimed fund of funds are more important to them as a source of "intelligent long-term capital" then in the past.

David Currie, chief executive of SL Capital Partners, a private equity fund-of-funds manager, said: "While it has been a tough couple of years for private equity as an asset class, we see continued demand from our institutional investors, and in may cases, an increased appetite for specialised expertise that can identify the private equity funds that will generate the most attractive returns in light of recent market conditions."

Currie highlighted that middle-market buyouts in North America and Europe have historically offered the potential for higher alpha returns because of greater growth opportunities and continued debt availability, but he admitted the volatility on a deal-by-deal basis is higher.

Therefore he argued investors need "prudent diversification of risk" through a broader portfolio of investments and claimed the outlook for the private equity secondaries market is positive for "2010 and beyond".

"As major financial institutions have made headway in reshaping their portfolio, we expect to see a greater number of private equity investments available for sale in 2010," added Currie.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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