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PE fund managers express concerns over institutional withdrawal

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GLOBAL - Private equity fund managers have become increasingly concerned about the shift from defined benefit (DB) pension funds to defined contribution (DC), and that regulatory changes in Europe will prevent institutional investors from allocating to the asset class.

According to a survey by Acanthus Advisers, private equity fund managers, or general partners (GPs), are worried about the complete or partial withdrawal of certain investors - namely limited partners (LPs) - from the asset class.

This, according to the study, has been aggravated by the fact that such withdrawals are rarely communicated clearly, making it difficult for fund managers to understand which investors constitute viable prospects for future funds.

Private equity fund managers also argue that reticence by pension funds and insurers to invest in the asset class will be due mainly to the implementation of new regulation such as Solvency II for insurers, in addition to the shift from DB to DC. 

"Regulatory changes are perceived as having a strongly negative impact despite dubious relevance, compelling many insurance companies and banks - [which] are also refocusing on core activities and boosting liquidity - to scale back their allocations," the report said.

"Combined with the shift in pension schemes from direct benefit to direct contribution, the fundraising difficulties experienced by many funds-of-funds and the rising preference of many LPs for direct investments, it is clear many of the largest historical suppliers of capital to GPs simply have much less to invest today."

However, another study research firm Preqin shows that the level of capital going through private equity funds was "buoyant" in the third quarter, with 131 funds holding interim closes, garnering $25.3bn (€19.5bn) towards their aggregate fundraising targets.

But Richard Stus, manager for fundraising data, acknowledged that GPs faced challenging times.

"The private equity fundraising environment continues to be a challenge for fund managers, with increasing average time on the road and reduced commitment levels from investors," he said.

Stus also noted that 89% of investors responding to a recent Preqin survey were planning to increase or maintain their allocations to private equity over the next 12 months, suggesting that investors still had "significant" appetite for the asset class.

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