(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.
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.