Market Volatility Spurs Interest in Private Equity

(November 29, 2011) — Amid an environment of market turbulence, nearly 25% of investors believe private equity is more attractive, new data shows.

The findings come from data firm Preqin, whose new research demonstrates that market instability could offer additional opportunities to invest in distressed situations, spurring many investors to seek openings in emerging markets.

“The global financial crisis undoubtedly prompted many limited partners to re-evaluate their private equity strategies,” comments Emma Dineen, Preqin’s Manager of Private Equity Investor Data. “Many have become more cautious and selective when choosing fund managers to invest with. However, despite recent volatility in the wider financial markets, investors generally remain positive about the private equity asset class, and many believe that there are good investment opportunities ahead.”

Dineen says in a statement that while investor appetite is there, the “crowded fundraising market means that investors are well positioned to be selective about the funds they choose to commit to, so the challenge remains for fund managers to market their funds in the best possible way and to ensure that they target the right investors if they are to enjoy success in this competitive market.”

Furthermore, the research firm’s findings show that more than three-quarters, 76%, of a sample of 300 investors interviewed in October and November 2011 plan to make new fund commitments over the coming 12 months, while 92% expect to maintain or increase their allocations over the longer term, further illustrating their confidence in the asset class. Just 8% intend to decrease their exposure to private equity over the next three to five years.

The greater investor appetite for private equity is illustrated by Kohlberg Kravis Roberts (KKR) and Apollo Global Management being set to manage $6 billion for the Teacher Retirement System of Texas’ (TRS). Earlier this month, each private equity firm announced that it would receive $3 billion from TRS to manage in separate accounts devoted solely to the scheme. According to TRS, the advantages of the new relationships include: improved diversification and potentially reduced long-term investment risk, increased ability to seek out and access attractive investment opportunities, heightened capacity to conduct strategic research, more aligned long-term economics and improved use of TRS’ resources. TRS continued: “Both Apollo and KKR are among the most reputable and successful private investment management firms in the world, and both have been investing successfully for 21 and 36 years, respectively.  They bring the abilities of two preeminent industry leaders into the long-term service of the 1.3 million members who participate in TRS.  As a result, these strategic partnerships endeavor to establish a sustainable competitive advantage for TRS.”