Preqin Finds First-Time PE Fund Managers Should Be Optimistic

(September 16, 2011) — Preqin’s latest research has found that private equity fund managers looking to raise their first funds have reason to be optimistic.

According to the research, more than 50% of investors have stated that they will at least consider investing in a first-time or spin-off fund, while performance data suggests that these funds have generated good returns for investors in the past.

“The private equity fundraising environment is extremely competitive, but there is evidence that despite the difficulties, emerging managers are successfully raising funds,” Preqin’s Helen Kenyon stated in a release. “While investors place a lot of importance on a fund manager’s past performance, they are keen to take advantage of highly attractive opportunities. With 36% of first-time fund managers going on to manage top quartile funds, it is perhaps not surprising that more than half of investors in private equity funds will consider backing a first-time or spin-off fund.”

In addition, the study showed that despite tough fundraising conditions, since the start of 2011, a number of first-time funds have reached a final close within a year of setting out. The conclusion, according to the research firm, is that investors are eager to take advantage of attractive opportunities regardless of manager experience. The research noted that the average time spent fundraising for first-time funds closed in 2011 to date is 20.2 months.

A report earlier this month by SEI and Greenwich Associates shows private equity is in demand as institutional investors, fund managers, and consultants plan to increase their allocations of the asset class or recommend increases to their clients over the next year, but they are urging greater transparency in the asset class.

The survey from SEI and Greenwich Associates, titled “The Logic of Fund Flows,” found that 26% of investors plan to increase their private equity mandates in the next year. However, investors and consultants differed on their investment objectives regarding private equity. Approximately two-thirds of investors (68%) pointed to return potential as their primary objective as opposed to 10% of consultants. Fifty percent of consultants, meanwhile, said diversification was their primary investment objective as opposed to only 18% of investors.

“As investors are looking to achieve higher returns in an increasingly challenging return environment, private equity is coming back, but standards are higher across the board,” said Greenwich Associates Managing Director Rodger Smith.