Despite rising geopolitical tensions, PE allocations remain high with 30% of institutional investors and 76% of family offices reporting allocating more than 15% of their portfolio to the asset class, a rise of 7% and 4% respectively, compared to 2023.
That’s according to Montana Capital Partners’ (mcp) 12th Annual Investor Survey, which explores investment preferences of global private equity investors with results underpinning the ongoing growth and attractiveness of the asset class.
Investors also continued to increase their allocation to secondaries with 13% and 12% of institutional investors and family offices now dedicating more than 25% of their private equity portfolio to secondaries, compared to 8% and 10% respectively, in 2023. Furthermore, seven out of 10 investors (69%) identified secondaries as a strategic preference in the current market environment.
“Private equity, in particular secondaries, remain popular with investors who express a very positive view of the resilience and future performance of the asset class,” said Marco Wulff, managing partner and CEO at mcp. “Many investors are positioning their portfolios for liquidity, which should create long-lasting tailwinds for investments in secondaries over the coming months and years.”
Indeed, private equity investors seem to be optimistic about the performance of the asset class going forward. While more than half of respondents had expected multiples to decrease in 2023, this year three-out-of-four investors (74%) believe private equity multiples will remain at current levels or trend higher, potentially supported by easing recession fears and supportive interest rate movements.
In terms of fund structures, more than one-third (35%) of investors prefer investing in generalist secondaries funds, allowing them to capture the benefits of both GP-led and LP-led transactions within the same fund, while only one-in-five (19%) respondents prefer specialist funds (LP- or GP-led) and the remaining investors not showing a clear preference. At the same time, specialisation of investment teams around either transaction type was identified as key priority when selecting secondaries firms.
In terms of sectors, investors continue to favour software and technology, healthcare, and business services with 68%, 67%, and 62% of investors assigning it the most attractive risk/reward profiles, compared to 68%, 64%, and 45%, respectively, in 2023. Notably, financial services are gaining momentum and are now favoured by 25% of investors, compared to 18% in 2023.
When it comes to artificial intelligence, more than one-in-four investors (26%) expect portfolio companies to reap the greatest benefits, while nearly three-out-of-10 (28%) feel it is still too early to tell which aspect will experience the strongest benefit.
When asked about their main concern regarding market activity over the next 12 months, geopolitical tensions were identified by 41% (2023: 15%), followed by inflated private equity valuations (25% vs 21% in 2023) and an economic recession (22% vs 32% in 2023).
