Preqin: Majority of Institutional Investors Bullish on Private Equity

A total of 65% of institutional investors expect private equities will deliver returns at least 4% over public markets, according to a new survey from data provider Preqin.

(August 13, 2012) – Most (71%) of institutional investors are satisfied with returns on private equity investments, and 99% expect returns will beat public markets, according to a recent Preqin survey of over 100 investors.

With higher fees and reduced transparency, private equity investments have to not only outperform public equities, but by a substantial margin. And 65% of the pension, foundation and endowment investors surveyed anticipate their private equity allocations will beat the public market by at least 400 basis points.

“[We] have had our ups and downs with private equity, but on the whole and over the longer term, [private equity returns] have met expectations,” said one US public pension fund respondent.

Almost half (49%) of those surveyed intend to both commit capital with existing fund managers and invest with managers they haven’t worked with in the past. Small to medium-sized buyout funds are the most popular fund type, with 49% of investors saying they will offer the best opportunities over the next 12 months. The same portion of respondents expect to commit capital to modestly sized buyout funds by summer 2013. Venture capital is the next most popular, with 23% of investors foreseeing best-in-class returns from that fund type.

For more stories like this, sign up for the CIO Alert newsletter. 

The survey also found substantial appetite for emerging markets: 68.4% of institutional investors said they expect to increase their exposure to these markets in the next 12 months. Among established markets, North America was looked on most favorably, and 24% of respondents won’t even consider investing in Europe. Still, Preqin found some investors are seeing opportunity lurking in the Continent’s precarious economy.

“Despite the ﬁnancial crisis, Europe is presenting some strong investment opportunities if there is a real strong long-term strategy,” said one respondent from an American endowment.

Private-equity firm Friedman, Fleischer & Lowe has purchased a majority stake in institutional-investment outsourcing firm Strategic Investment Group.

(August 13, 2012)-West Coast private-equity firm Friedman Fleischer & Lowe has purchased a majority stake in Virginia-based Strategic Investment Group.

Strategic, an industry leader in the investment-outsourcing business with $28 billion in assets under management as of December 31, 2011, has long been thought to be looking to sell a stake in its business. The sale is effective as of July 31, 2012, aiCIO has learned.

Hilda Ochoa-Brillembourg, formerly of the World Bank pension fund, founded Strategic in 1987 along with other senior employees of the pension. The firm won aiCIO’s 2011 Industry Innovation Award for its work in the investment outsourcing space.

According to its submission to the 2012 aiCIO Investment Outsourcing Buyer’s Guide, the firm had full discretion over manager selection for 65% of its assets. At the time of the Guide’s publication in February 2012, Strategic had 57 clients. Corporate pension assets made up approximately 57% of the firm’s total assets under management; foundation assets made up 25%; public pension, endowment, and insurance general account assets made up the remainder.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The firm’s asset under management had doubled since 2007, with large growth seen in both the corporate pension and foundation sectors, according to its submission.

San Francisco-based Friedman Fleischer & Lowe was founded in 1997, closing its first fund of $333 million in 1999. It has since raised two other funds in 2004 ($811 million) and 2008 ($1.5 billion).

Investment outsourcing, surveys show, is a business with growing strategic importance among asset owners and asset managers. According to the 2012 aiCIO Investment Outsourcing Survey, lack of internal resources, additional fiduciary oversight, and better risk management are all leading to an increased demand for these services.

Among the firms participating in the Buyer’s Guide, assets under management where the outsourcing firm achieves “full discretion over manager selection” is up 283% since 2007.

Manhattan-based Kudu Advisors acted as the investment bank representing Strategic Investment Group in the deal. Kudu is led by Asset International founder and former CEO Charlie Ruffel. Asset International is the parent company of aiCIO.

Representatives of Strategic could not be reached at press time.