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Discontent fanned by a sharp decline in performance is giving way to renewed faith in private equity on the part of institutional investors. At the same time, investors have become more finicky about picking PE funds.
Those were two key findings of Coller Capital Ltd.'s latest survey of pension funds, endowments and other institutional investors' attitudes relating to private equity and venture capital. Coller, a well-known acquirer of limited partnership stakes in PE funds, canvassed 120 investors in North America, Europe and Asia for its report.
"There seems to be greater enthusiasm for private equity than we've seen in the [recent] past," said Coller's president of U.S. operations, Frank Morgan, about the survey.
"There's a belief" that the two-year slump in PE returns and profit-taking triggered by the financial crisis "was not a death knell" for the category, he said.
Buoyed by last year's pickup in profit payouts, rebounding valuations and deal activity, 34% of those surveyed said they plan to hike their target allocations to PE in the coming year. That's up from less than 20% of respondents last year.
That change dovetails with investors' belief that the PE industry's current crop of investments will yield particularly strong gains: Sixty percent expect PE investments made in 2010 and 2011 will deliver annual net returns of 16% or more, the survey found.
And 33% think their PE portfolios will equal or top the 16% return mark over the next three to five years, versus 29% one year ago.
Still, the confidence level is not as high as it was at the peak of the leveraged buyout boom, when 45% to 50% of respondents said they projected three- to five-year returns of 16% or more. - David Carey
