Preqin, the investment intelligence data provider, recently released their special report on the state of private equity funds of funds across the world. Here’s a look.
Where are the Private Equity Fund of Funds Managers?
First, a question – where would you guess the most managers of private equity fund of funds are located? The United States? Europe? China?
Unsurprisingly, almost half of the private equity fund of funds managers are headquartered in the United States (141 out of 293). Is the second place surprising? Interestingly, in second place is not a European country, but rather China at 33. Finance is moving full steam ahead in the Communist country. The rounding out the top five are Germany at 21, the United Kingdom at 18, and Switzerland at 15.
Other members of the top 10 include France at 13, Spain at 6, and a host of countries at 5 (Denmark, Italy, Japan, Luxembourg, Norway, and South Africa).
Source: Preqin
Are Private Equity Funds of Funds Gaining or Losing Ground?
Perhaps the question everyone wants answered is if private equity funds of funds are increasing as a proportion of the total private equity investment universe. Before looking, take a guess. Would you think investors are looking to spread out risk among private equity managers, and thereby opting for funds of funds? Or, perhaps would you guess investors have fees on their minds, and therefore look to minimize allocations to assets with higher management fees, which includes private equity funds of funds. Here’s the answer.
Interestingly, private equity funds of funds fundraising as a proportion of all private equity fundraising is generally on a downward trend. Since peaking in 2007 at around 15 percent of all aggregate private equity capital raised, the percentage of total private equity investments allocated to funds of funds has declined precipitously to 4 percent.
A similar trend emerges for the number of funds closed. After peaking in 2007 at around 18 percent, the number of funds of funds closed has declined to about 9 percent of all private equity funds. Hmm. Not pretty.
Source: Preqin
What about Investors’ Views of the Key Issues Facing Private Equity?
Shifting now to the reason behind the previous two trends – investors’ perceptions of the private equity industry. What would you guess is the top concern of investors considering putting money into private equity funds? Return? Fees? Liquidity? Here are the responses.
Interestingly, the top concern among investors in private equity is the pricing/valuations picture (86 percent). Apparently, investors are concerned that private equity funds are overpriced. Intriguing given the relative pricing nature of publicly traded equities and other asset classes. This concern likely shows up in investors’ concerns about the state of other asset classes.
Are you surprised by the second view – deal flow? Apparently investors appear keyed in on what the deal flow environment looks like (51 percent).
Other concerns on the list include exit environment (41 percent), fees (38 percent), performance (32 percent), regulation (16 percent), ongoing uncertainty in global markets (11 percent), availability/pricing of debt financing (11 percent), and transparency (10 percent). It’s an interesting time to be considering private equity.
Source: Preqin
Conclusion
Overall, in an interesting review of the state of funds of funds within the private equity universe, investors have a host of concerns and interesting trends to consider.
Comments on this entry are closed.