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Institutional appetite for private equity on the up, study shows

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GLOBAL - Institutional investor appetite for private equity is on the way up as the asset class's return on investment since the beginning of the year has exceeded expectations, according to Preqin.

A recent report by the company found that investors were still committing capital to private equity funds despite uncertainty in the wider financial markets, with 90% expecting to maintain or increase allocations to the asset class in the longer term.

The study also found that 44% of investors expect to commit capital to private equity funds before year-end.

Most of the institutional investors surveyed by Preqin said their private equity investments had performed as expected over the last six months, while a minority said their private equity returns had exceeded expectations.

Most investors now expect returns in excess of 400 basis points over public markets, Preqin said.

However, according to the study, even though 81% of investors are likely to continue to make new commitments to private equity funds in the near future, most remain cautious when making new commitments, and just 23% expect to invest in first-time funds in the next 12 months.

Antonia Lee, manager of private equity investor data, said: "Aggregate capital raised by funds closing in H1 2012 has increased slightly in comparison with H2 2011, despite concerns about ongoing problems in the euro-zone and wider financial markets.

"Although some investors remain reluctant to commit fresh capital to funds, and others are exploring new methods of accessing private equity investments, the majority of LPs [limited partners] intend to continue to allocate capital to private equity funds in the longer term."

Lee said that, in such a competitive market, fund managers must assess their existing investor base to establish how much capital they are likely to receive from existing investors, and how much capital they are likely to need to source from additional LPs.

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