Institutional Investors Newly Tempted by Venture Capital

(June 11, 2014) — Institutional investors are increasingly allocating to venture capital, reversing a severe drop in appetite for the sector in the wake of the financial crisis, according to Preqin.

Of more than 5,300 limited partners already actively invested in private equity, Preqin found 59% have displayed a preference for, or have previously committed to, venture capital funds.

“With a significant proportion of limited partners looking to make commitments to venture capital funds going forward, it can be seen that many investors believe the fund type to be presenting attractive opportunities in the current financial climate,” the report said. 

Furthermore, 12% of the surveyed investors said they were looking to commit to new venture capital investments in the next 12 months.

Foundations accounted for 13% of the pool of investors interested in the asset class, the highest proportion among institutional investors. Endowments and private pension plans followed suit at 12% each.

According to Preqin, the University of Virginia Management Company said it would look into global venture capital opportunities in the coming year, although it has previously shown a preference for US-based investments. The New York University endowment also made a sizeable commitment to a Chinese venture capital fund, Preqin said. 

A report by NACUBO-Commonfund Study of Endowments in 2012 found endowments earned an average return of 6.4% on venture capital investments. 

Public pension funds accounted for the smaller proportion of investors interested in venture capital—10% of surveyed limited partners.

Geographically, more than half of investors attracted to venture capital were found in North America, a market “buzzing with activity particularly stemming from the renowned Silicon Valley,” Preqin said. Western European limited partners made up 21% of total investors while Asian investors made up only 5%.