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Two-thirds of private equity investors “to hit limits in 2009”

Two thirds of private equity investors will have little or no headroom for new fund commitments by this time next year, according to Coller Capital’s latest Global Private Equity Barome

Two thirds of private equity investors will have little or no headroom for new fund commitments by this time next year, according to Coller Capital’s latest Global Private Equity Barometer.

The company says North American limited partners will be particularly stretched, with 28 per cent expecting to have exceeded their allocation to the asset class by December 2009.

However, it found that overall investor commitment to private equity has not wavered: 57 per cent of limited partners expect to maintain, and 40 per cent to increase, their allocations to private equity in 2009.

Between a quarter and a third of all limited partners have begun investing in the asset class since the year 2000 and many of these are still growing their private equity programmes.

Coller Capital says investors’ return expectations for the medium term have not changed either: 43 per cent of limited partners still expect net annual returns of 16 per cent or more over the next three to five years.

Jeremy Coller, chief investment officer of Coller Capital, says: ‘With portfolios suffering from both the denominator effect and the distributions drought, limited partners have three options: to increase their allocations to private equity, to cut their commitments, or to seek liquidity through secondaries. In practice, even limited partners without allocation or liquidity problems will seek to access the secondaries market, because many will want to re-shape their portfolios to reflect new economic realities.’

The barometer also reveals that financial and economic difficulties will not slow the globalisation of private equity.

The proportion of North American limited partners with six per cent or more of their private equity exposure in the Asia-Pacific will grow to almost 70 per cent within three years, from 41 per cent today.

For European limited partners the story is similar – around one third have an Asia-Pacific exposure of six per cent or more today, and this will rise to approaching two thirds of European limited partners within three years.

India and China will continue to be the most attractive markets in the Asia-Pacific, followed by the developed economies of Japan and Australia.

Investment in private equity funds targeting the Middle East will also grow. Despite perceiving significant barriers to investment in the region, 20 to 30 per cent of limited partners plan to dip their toes in Middle East private equity over the next three years.

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