Alt Investments
"Dry Powder" Builds Up In Global Private Equity Sector; Investors Remain Upbeat On Asset Class - Preqin

The amount of unspent capital in private equity funds is piling up but so far investors remain generally positive about the sector, figures show.
There is an increasing amount of uncommitted money – or “dry
powder” – waiting to be put to work by private equity funds,
according to figures up to the middle of this year, showing a
total of $965 billion of uncalled capital, a situation that is
reducing fund-raising activity, figures show.
Figures from Preqin,
which tracks alternative investments such as private equity and
hedge funds, said that because of the large amounts of unspent
capital, investor activity has slowed, but attitudes towards
private equity remain positive. From Preqin’s database of private
equity managers, some 87 per cent of investors say their
investments have matched, or beaten, expectations in the past
year.
As a measure of a generally positive stance, only 11 per cent of
100 institutional investors surveyed indicated they are looking
to invest less capital in private equity compared to 12 months
before, the smallest proportion across all asset classes, Preqin
said in a report.
Some 9 per cent of private equity investors want to cut the
number of general partner relationships they maintain in their
portfolio over the next two years, compared with 14 per cent
taking this view six months ago. This outcome will be welcome
news to fund managers, Preqin said, because the statistic
suggests that the wider limited partner community isn’t
retreating from the sector, as was the case with the giant
California pension fund CalPERS, which has been reported to be
actively looking to cut its number of GP relationships.
In terms of fund types, the majority of limited partners still
see small to mid-market buyouts as offering the best
opportunities in private equity, with 50 per cent of respondents
looking to invest in this fund type in 2015.
Some 23 per cent of private equity investors see venture capital
funds as presenting the best opportunities, followed by
distressed private equity and mezzanine funds, which were viewed
as presenting the best opportunities by 17 per cent and 14 per
cent of private equity investors respectively.
First-time fund managers continue to be at a disadvantage when
looking to secure capital, with 51 per cent of LPs indicating
that they would not commit to a debut fund managed by a new GP.
Slightly fewer than half of LPs (47 per cent) said they deem the
length of a GP’s track record as the most important factor to
take into account when deciding whether to commit to a fund,
highlighting that experience remains vital to a GP’s fundraising
success.
Performance
The report found that more than a third (35 per cent) of
respondents stated that their private equity fund investments
beat their expectations in the last year, which is a substantial
increase on previous years. In recent times, the proportion of
investors that had their expectations surpassed for their private
equity portfolios has been declining, falling from 18 per
cent in June 2013 to 12 per cent in June 2014. The
proportion of LPs that felt their investments in the asset class
had fallen short of expectations has remained relatively constant
at 13 per cent.
However, there is some notable disparity in satisfaction with
returns between regions. According to Preqin’s survey, half of
investors based in Europe had their expectations exceeded by the
performance of their private equity fund investments over the
past year. But with 19 per cent of Europe-based investors
reporting that their private equity portfolio had fallen short of
expectations, the region has the largest proportion of
dissatisfied LPs.
Between 2013 and 2014, a notable period for bull market
conditions with significant stock market highs, there was a
decrease in the proportion of investors that expected their
private equity portfolios to beat the public market by more than
2 per cent, the report continued.
In June 2015, despite public market indices nearing record highs,
the largest proportion of investors (49 per cent) have indicated
they expect their private equity investments to exceed public
market returns by more than 4 per cent. This would be driven by
the apparent success of respondents’ private equity investments
in the last 12 months.
Preqin compiled a league table of consistent performers, using
only the funds for which it has performance data and has assigned
a quartile ranking. (However, 2013, 2014 and 2015 vintage
funds have been excluded as these funds are too early in their
fund lives to generate a meaningful internal rate of
return.)
Some six buyout managers achieved the best possible score of
1.00: Inflexion, Vista Equity Partners, Harvest Partners, Odyssey
Investment Partners, Altor and DFW Capital. In the venture
capital space, nine VC fund managers clocked up the top score of
1.00: Pittsford Ventures Management, Sequoia Capital, Benchmark
Capital, OrbiMed Advisors, General Catalyst Partners, Union
Square Ventures, Spark Capital, Pontifax and Atomoico. In the
mezzanine space, no fund managers achieved the best average score
of 1.00 in 2015, but three achieved a score of 1.33: IFE
Mezzanine, MezzVest and Bond Capital.
In real estate, three real estate fund managers achieved the best
score of 1.00: Carmel Partners, Centennial Holdings and
Embarcadero Capital Partners. As far as infrastructure is
concerned, the most consistent performing infrastructure fund
manager in 2015 is Harbert Management Corporation with an average
quartile ranking score of 1.75.