Investors See Rosy Outlook in Secondary Private Equity

(May 14, 2010) — Investors are sensing opportunities in secondary private equity, a new report conducted by Talamore Group on behalf of SL Capital Partners shows.

The research reflects that the sector’s long-standing fundraising problems may recover in the near future. According to Preqin, the buyout industry suffered its worst period for fundraising for six years in the last two quarters.

“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 many cases, an increased appetite for specialized expertise that can identify the private equity funds that will generate the most attractive returns in light of recent market conditions,” said SL Capital Partners CEO David Currie. He stressed that investors need “prudent diversification of risk” through an extensive portfolio of investments and asserted that the outlook for the private equity secondaries market is positive for “2010 and beyond.”

The perception study, conducted by one of Europe’s largest and most active fund-of-funds managers, revealed 89% of respondents intend to increase or maintain their current allocation to private equity, while one-quarter plan to increase their exposure to the asset class.

Shifting their sights from the mega buy-out market, institutional investors are now following different strategies. Now highlighted as the most attractive sub-strategies for private equity are middle-market buy-outs and growth capital, secondaries, and distressed and special situations. Private equity fund managers who responded to the study confirmed the continuing importance of funds-of-funds as a source of intelligent long-term capital, with 38% indicating that funds-of-funds are more important to them now than in the past, according to a statement.

The research is based on the findings of 44 participants representing 23 major institutional investors, five pension consulting firms and 16 private equity fund managers across Europe and North America.