[LONDON] Investors are optimistic about private equity, but reconsidering their allocations to hedge funds, a survey showed on Monday.
The Global Private Equity Barometer by Coller Capital showed that almost two-fifths of investors, or Limited Partners (LPs) as they are known, are planning to increase allocations targets to private equity over the next year.
Ninety-three percent of investors believe they will get annual net returns of more than 11 percent from their private equity portfolios over a 3-5 year horizon, the survey showed, up from 81 per cent of investors two years ago.
Last year saw a record US$568 billion of distributions from private equity, compared with US$381 billion in 2012, according to figures from data compiler Preqin. "What you've seen over the last two years is distributions from the private equity portfolio have been very, very strong, which will give investors a cause for optimism," said Michael Schad, Partner at Coller Capital. "Four years ago people might have had questions on the 2006-2007 vintage. But these funds have really turned around,"Schad added, referring to funds raised in the years just before the financial crisis.
That optimism contrasted with the one-third of investors that said they would decrease their allocation to hedge funds, following poor performance from many such firms. Major US pension fund CalPERS made a high-profile withdrawal from hedge funds in September.
Hedge funds on average have gained just under 5 per cent this year through November, according to data from industry tracker Eurekahedge, against a 10.2 per cent rise in the S&P 500 US equities index.
Investors also painted a gloomy macroeconomic picture, with almost half expecting a major economic downturn within five years, while more than a third of European investors expect deflation in the euro zone.
And LPs are increasingly looking beyond the United States and Europe for returns. Asia (excluding Japan and India) is the region drawing the most attention, with almost one-fifth of LPs planning to ramp up investments, closely followed by Latin America.