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pdf

INVESTOR OUTLOOK FOR PRIVATE EQUITY IN 2017

INVESTOR OUTLOOK FOR

PRIVATE EQUITY IN 2017
Using data from the recently released Preqin Investor Outlook: Alternative Assets, H1 2017, we take a look at investor appetite for private
equity in the year ahead, including allocations, strategies and geographies targeted, key issues and more.

SATISFACTION WITH PRIVATE EQUITY exceeded expectations (Fig. 2). The 5% their confidence in the ability of private
Institutional investors surveyed by Preqin that felt that their investments had fallen equity to achieve portfolio objectives
in December 2016 expressed a high level short of expectations was the smallest had fallen over the past year increased
of satisfaction with private equity: 84% of proportion in the past six years. from 9% to 14% (Fig. 3), possibly due to
investors reported a positive view of the concerns about whether fund managers
asset class at present, up from 59% two In terms of longer-term performance, can continue to deliver strong returns at
years earlier (Fig. 1). investors are even more positive: 40% a time of high valuations. Nevertheless,
reported that their private equity the vast majority (86%) of fund managers
Ninety-five percent of investors reported investments had exceeded expectations reported that their confidence in the
that their private equity fund investments over the past three years, second only to ability of private equity to achieve
had met or exceeded expectations in private real estate (42%). Despite this, the portfolio objectives was unchanged or had
2016, including 24% for which they had proportion of investors that reported that increased over the past 12 months.

Fig. 1: Investors General Perception of the Private Equity Fig. 2: Investor Views on Private Equity Portfolio Performance
Industry, 2014 - 2016 over the Past 12 Months Relative to Expectations, 2011 - 2016
100% 100%
6% 11% 13% 17%
90% 90% 24%
30%
80% 80%
Proportion of Respondents
Proportion of Respondents

59% Exceeded
70% 70%
65% Positive Expectations
60% 60%
84% 75%
Neutral 74% Met
50% 50% 77%
75% Expectations
40% 40% 64% 71%
Negative
Fallen Short of
30% 30%
Expectations
33%
20% 29% 20%

10% 13% 10% 19% 15% 11%

9% 6% 8% 6% 5%
0% 3% 0%
Dec-14 Dec-15 Dec-16 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: Preqin Investor Interviews, December 2014 - December 2016 Source: Preqin Investor Interviews, December 2011 - December 2016

Fig. 3: Investors Change in Confidence in the Ability of Private

Equity to Achieve Portfolio Objectives over the Past 12 Months, Fig. 4: Investors Intentions for Their Private Equity Allocations
2015 vs. 2016 over the Long Term, 2011 - 2016
100% 100%
10%
90% 18% 90%
27%
33% 36%
80% 80% 39%
Proportion of Respondents

48%
Proportion of Respondents

Increased 52% Increase

70% 70%
Confidence Allocation
60% 60%
76% No Change in 50% Maintain
50%
74% Confidence Allocation
61% 48%
40% 40% 49%
Reduced 53% Decrease
30% 30% 46%
Confidence 43% Allocation
20% 20%

10% 10% 19% 16%

14% 12% 8%
9% 6% 6%
0% 0%
Dec-15 Dec-16 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: Preqin Investor Interviews, December 2015 - December 2016 Source: Preqin Investor Interviews, December 2011 - December 2016

3 Private Equity & Venture Capital Spotlight | March 2017 Preqin Ltd. 2017 / www.preqin.com
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INVESTOR OUTLOOK FOR PRIVATE EQUITY IN 2017

Investor satisfaction with private equity is over the next 12 months has also fallen investments has fallen from 34% to 26%
driving larger sums of capital to the asset over the same period, from 13% to 11%. over the same period.
class as investors look to maintain and
increase their allocations. Over the longer With 89% of investors looking to invest the However, despite investing across
term, almost half (48%) of respondents same amount or more capital in private a larger number of vehicles, for the
plan to increase their allocations to private equity in the next year, over three-quarters majority of investors, the intended capital
equity, while a further 46% will maintain (76%) plan to make their next commitment commitment to the asset class remains
their allocations these are some of the in Q1 2017 and 7% intend to do so in Q2 small: 52% of investors plan to invest less
highest levels seen over the past six years (Fig. 6). A further 11% plan to invest in than $50mn in private equity over the
(Fig. 4). the second half of the year, with only 6% next 12 months (Fig. 8). Nevertheless, a
expecting to wait until 2018 or later for small but important group of investors
INVESTOR ACTIVITY IN 2017 their next commitment. will be making large commitments over
Positive investor sentiment towards private the coming year: 13% of investors plan to
equity is set to lead to further investment Investors are increasingly spreading their invest $500mn or more in the asset class.
in the asset class in the year ahead, as 40% investment across a number of funds,
of investors plan to commit more capital to with the proportion of investors that plan STRATEGIES AND GEOGRAPHIES
private equity funds in the next 12 months to commit to five or more funds over the TARGETED
than they did over the past 12 months next 12 months increasing from 43% in As investors seek to commit greater sums
(Fig. 5). Although this represents a small the H2 2016 Investor Outlook to 51% at of capital to private equity over the coming
decrease from 43% in December 2015, the present (Fig. 7). Similarly, the proportion year, they continue to identify small to mid-
proportion that plan to invest less capital that intend to make just one or two market buyout funds as the most attractive

Fig. 5: Investors Expected Capital Commitment to Private Equity

Funds in the Next 12 Months Compared to the Previous 12 Fig. 6: Timeframe for Investors Next Intended Commitment to a
Months, 2015 vs. 2016 Private Equity Fund
100%
90%
6%
3%
80% 43% 40%
Proportion of Respondents

8% Q1 2017
70% More Capital
60% 7% Q2 2017
50% Same Amount
of Capital Q3 2017
40%
45% 49% Less Capital Q4 2017
30%

20% 2018 or Later

76%
10%
13% 11%
0%
Dec-15 Dec-16
Source: Preqin Investor Interviews, December 2015 - December 2016 Source: Preqin Investor Interviews, December 2016

Fig. 7: Number of Private Equity Fund Commitments Investors Fig. 8: Amount of Fresh Capital Investors Plan to Invest in Private
Plan to Make over the Next 12 Months Equity Funds over the Next 12 Months

13%
26% Less than $50mn
29% 1-2 Investments
7%
$50-99mn
3-4 Investments

52% $100-349mn
5-6 Investments
18%
$350-499mn
7 or More Investments

23% $500mn or More

22%
10%

Source: Preqin Private Equity Online Source: Preqin Private Equity Online

4 Private Equity & Venture Capital Spotlight | March 2017 Preqin Ltd. 2017 / www.preqin.com
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INVESTOR OUTLOOK FOR PRIVATE EQUITY IN 2017

fund type, with 58% of investors believing America (25%) over the coming year, Emerging Asia (41%), China (39%) and
they present the best opportunities (Fig. with 4% and 7% planning to reduce their India (20%, Fig. 12).
9). This is up from 50% in the H2 2016 allocations to these regions respectively
Investor Outlook, but remains below the (Fig. 11). KEY ISSUES
figure for H1 2016 (61%). Venture capital While investor sentiment towards private
followed, cited by 28% of respondents, Outside the established private equity equity is positive, there remain a number
although this has fallen from 36% in June markets of North America and Europe, of challenges facing investors in the
2016, possibly due to investor concerns 21% of investors saw Asia as among the asset class. High valuations for portfolio
about overinflated prices for venture most favourable regions for private equity companies remain the number one
capital companies and their potential investment. Eighteen percent of investors concern, cited by 70% of respondents (Fig.
impact on future returns. plan to increase their allocation to the 13). Combined with record levels of dry
region over the coming year, compared powder and stiff competition for assets,
North America is considered the most with only 5% that plan to decrease it. investors are increasingly concerned
promising region for private equity about the impact high pricing will have on
investment: 61% of investors believe it Emerging markets and the Rest of World returns in future.
presents the best opportunities at present, region were seen as offering the best
followed by Europe (44%, Fig. 10). In opportunities by 19% and 7% of investors With valuations high, the exit environment
terms of allocations, however, a greater respectively. According to investors has also become a key issue for the
proportion of LPs plan to increase their currently active in emerging markets, the industry, with investors concerned that
allocation to Europe (31%) than North most promising countries/regions are it may become more difficult for fund

Fig. 9: Fund Types* that Investors View as Presenting the Best Fig. 10: Regions* Investors View as Presenting the Best
Opportunities Opportunities
70%
Small to Mid-Market Buyout 58%
61%
60%
Venture Capital 28%
Proportion of Respondents

50%
Large to Mega Buyout 24% 44%
40%
Growth 18%
30%
Fund of Funds 16%
21% 19%
20%
Secondaries 14%
10% 7%
Other 7%
0%
0% 10% 20% 30% 40% 50% 60% 70% North Europe Asia Rest of World Emerging
Proportion of Respondents America Markets
Source: Preqin Investor Interviews, December 2016 Source: Preqin Investor Interviews, December 2016

Fig. 11: Investors Plans for their Private Equity Allocations over Fig. 12: Countries and Regions* within Emerging Markets that
the Next 12 Months by Region Investors View as Presenting the Best Opportunities
100%
Emerging Asia 41%
90% 18% 20%
25% China
31% 39%
80%
Proportion of Respondents

Increase India 20%

70% Allocation
60% Africa 17%
Maintain
50% Latin America 17%
Allocation
68% 77% 75%
40% Middle East 11%
65%
30% Decrease
Allocation Brazil 11%
20%
Central & Eastern Europe 9%
10%
7% Russia 2%
0% 4% 5% 5%
North Europe Asia Emerging 0% 10% 20% 30% 40% 50%
America Markets
Proportion of Respondents
Source: Preqin Investor Interviews, December 2016 Source: Preqin Investor Interviews, December 2016

*Respondents were not prompted to give their opinions on each fund type/region individually but to name those they felt best fit these categories; therefore, the results display the fund
types/regions at the forefront of investors minds at the time of the survey.

5 Private Equity & Venture Capital Spotlight | March 2017 Preqin Ltd. 2017 / www.preqin.com
View the full edition of Spotlight at: https://www.preqin.com/docs/newsletters/pe/Preqin-Private-Equity-and-Venture-Capital-Spotlight-March-2017.pdf

INVESTOR OUTLOOK FOR PRIVATE EQUITY IN 2017

managers to realize their investments year, compared with only 5% that are All of these issues may pose a challenge to
at current valuations. The proportion of finding it easier (Fig. 14). investors as they become more ambitious
investors citing the exit environment as a in their return targets for their private
concern increased to 51% from 24% the In terms of broader macroeconomic equity portfolios. Just under half (49%) of
previous year. developments affecting performance, investors reported that they are targeting
the key factors that investors believe will returns of 4.1% or more above public
Deal flow was also cited by 41% of affect their private equity portfolios in markets for their private equity portfolios,
investors, up from 34% in December 2015. the year ahead are stock market volatility up from 37% in December 2014 (Fig. 16).
Forty-five percent of investors reported (49%), low interest rates (41%) and the
that it has become harder to find attractive geopolitical landscape (26%, Fig. 15).
investment opportunities over the past

Fig. 13: Investor Views on the Key Issues Facing Private Equity in Fig. 14: Investor Views on the Difficulty of Identifying Attractive
2017 Investment Opportunities Compared to 12 Months Ago
80%
70%
Proportion of Respondents

70%
60% 5%
51%
50%
41% 39%
40% Harder to Find Attractive
33%
29% Opportunities
30% 25%
20% 15% 15% 45% No Change
10%
0%
50% Easier to Find Attractive
Fees
Deal Flow

Volatility/Uncertainty
Valuations

Regulation
Performance

Transparency
Exit Environment

Public Perception of
in Global Markets

Opportunities
Industry

Source: Preqin Investor Interviews, December 2016 Source: Preqin Investor Interviews, December 2016

Fig. 15: Investor Views on the Macroeconomic Factors that Had

the Biggest Impact on Their Private Equity Portfolios in 2016 vs. Fig. 16: Investors Return Expectations for Their Private Equity
Predictions for 2017 Portfolios, 2011 - 2016
53% 100%
Low Interest Rates
41%
90%
StockMarketVolatility 42%
49% 37% Public Market
80% 43% 40%
26% 49% +4.1% and over
Proportion of Respondents

Currency MarketVolatility 54%

19% 70% 63%
Geopolitical Landscape 24%
26% 60% Public Market
17% +2.1% to +4%
Central Bank Intervention 50%
23%
Brexit Vote 10% 37% Public Market
8% 40% 49%
43% 30% +2%
China Economic Slowdown 7% 30% 29%
10%
25%
Commodity PriceVolatility 4% 20% Same as Public
5% 18% 15% Market
10% 9%
0% 20% 40% 60% 7% 11% 12%
5% 8% 5% 6%
Proportion of Respondents 0% 2% 3%
2016 2017 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
Source: Preqin Investor Interviews, December 2016 Source: Preqin Investor Interviews, December 2011 - December 2016

PREQIN INVESTOR OUTLOOK: ALTERNATIVE ASSETS, H1 2017

PREQIN
INVESTOR OUTLOOK:
ALTERNATIVE ASSETS

Preqin Investor Outlook: Alternative Assets, H1 2017 brings together the results of a series of in-depth H1 2017
Private Equity Hedge Funds Real Estate
Private Debt Natural Resources
Infrastructure

interviews conducted by Preqins analysts with over 500 institutional investors. With the alternative assets
industry larger than ever before, this report aims to provide insight into institutional investors portfolios and
future plans, their confidence in different asset classes and the challenges they face in a turbulent geopolitical
landscape.
alternative assets. intelligent data.

Download your copy now: www.preqin.com/investoroutlook

6 Private Equity & Venture Capital Spotlight | March 2017 Preqin Ltd. 2017 / www.preqin.com
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