Private equity is set to play an increasing role in institutional investors’ portfolios in the future, according to Adveq, an independent private equity fund of funds investment manager
Private equity is set to play an increasing role in institutional investors’ portfolios in the future, according to Adveq, an independent private equity fund of funds investment manager.
The firm says investors will need to more actively manage their private equity allocations in the context of their overall asset management in order to deliver future returns.
Market volatility over the past two years has left financial institutions around the world struggling with weakened balance sheets and large scale exposure to equities or equity-like securities has left many, pension funds and insurance companies in particular, struggling to cover their liabilities. Financial dislocation in all the major economies and ongoing calibration efforts to stabilize various systems means that market volatility will continue to be a feature of the next few years.
Adveq says private equity, in the short term at least, represents the only real source of equity or debt available for funding enterprises. Furthermore, the trends which took root at the start of the market downturn, with equity ownership moving from corporate to government hands and the increasing convergence of the risk/return profile of debt and equity, will likely continue, especially in a world characterized by increased volatility.
Bruno Raschle (pictured), managing director of Adveq, says: ‘As banks and other financial institutions find themselves unable to lend or invest and shy away from opportunities which are not guaranteed, businesses of all sizes will be driven to the private market to meet both their debt and equity funding requirements. For investors in the asset class, this means that, in order to include private equity in their risk modelling, they will need more bottom-up information about the underlying portfolio companies to enable them to really understand their risk exposure. Most importantly investors need, more than ever, to make private equity investment decisions in the context of the overall investment landscape and take mid to long term macro-trends into account as this will determine the success or otherwise of their private equity investments.’
