Alt Investments

Valuations Top Private Equity Managers' Concerns This Year - Preqin

Tom Burroughes Group Editor 15 February 2016

Valuations Top Private Equity Managers' Concerns This Year - Preqin

The valuations of portfolio companies are becoming a greater concern for managers of private equity funds.

More managers of private equity funds worry about unattractive valuations for this year than they did a year ago and this has become a bigger concern than raising money, according to a survey of 330 firms in the sector by Preqin, the research business.

Some 40 per cent of respondents said they were concerned about the price of portfolio companies. This issue has seen an 8 percentage point rise from last year, overtaking fundraising to become the greatest challenge that fund managers face in 2016. 

There remains significant variation geographically in the perception of the biggest challenges facing general partners in 2016. Of the North America-based GPs surveyed, concern over valuations outweighed any other issue by some margin, while a more equal proportion of Europe-based GPs highlighted a wider range of issues as their area of primary concern, including valuations, fundraising, performance and regulation.

Asia- and rest of world-based managers, however, appear far more apprehensive about fundraising, with 54 per cent and 57 per cent of respondents selecting this issue respectively. As confirmed by Preqin’s limited partner survey results, the fact that the majority of LPs believe the more developed private equity markets are the regions presenting the best opportunities, combined with the rise of "unicorn" valuations and greater competition for deals, perhaps goes someway to explain this geographic variation.

Performance, regulation and the ongoing volatility and uncertainty in global markets were all selected by significant proportions of fund managers, with Asia-based managers the most concerned about the global economic outlook moving into 2016. 

Europe-based managers were the most concerned about regulation, highlighting the long-term impact of the Alternative Investment Fund Managers Directive and other regulation on the European private equity market. Additionally, 29 per cent of Asia-based fund managers were concerned about exits, a larger proportion than in the other regions, possibly due to economic fears and the difficulty of pulling off a successful IPO, Preqin said. 

When asked about the difficulty of sourcing attractive investment opportunities compared to 12 months ago, 38 per cent of fund managers said it is more difficult now to do so than the previous year. Only 9 per cent of respondents suggested that it is now easier to find attractive opportunities, the same proportion seen in last year’s survey.

More than half (51 per cent) of fund managers stated that they have seen no change in the difficulty of finding attractive deal opportunities, despite widespread concerns over valuations.


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