Well, the going will be tough for over 1,600 new funds worldwide who are on the road with aggregate targets in excess of $900 billion. A recent survey of limited partners across the world says that fundraising will likely be depressed in 2008 and 2009. The fundraising in Q3 (July-September) 2008 declined sharply to the lowest quarterly total since 2005. The investors have also become realistic about their IRR expectations, which are in the range of 15%-20% for the coming 5 years, says a survey by Prequin. Also the fundraising is likely to pick up by 2010.
But the investors are fundamentally optimistic about returns form PE funds, and thus there should be long-term increase in LPs’ target allocations to private equity. The LPs’ are also now selecting funds with experience and track record, with a preference for funds with a tightly focused strategy. Trust and alignment of interest are now a major factor that LPs take into account before investing.
The report says that LPs fully understand the challenges facing markets generally, and private equity in particular. Despite this, they are cautiously optimistic of the prospects for private equity, and appear set to continue the longer-term trend of making increased commitments to the asset class.
Though the LPs are wary of the investments made at the peak of the market in last couple of years, they are very upbeat investment opportunities in the current scenario. Historically funds that have had their investment periods during market downturns have often been among the best-performing vintages.
Another interesting finding of the survey is that investors have not changed their fund allocation strategies. About 86% of the investors polled said that they will continue allocating to the strategies that they already invest in, particularly areas of buyouts and venture.
Also increasingly the investors are relying on consultants for PE investments, with nearly half of the participants using their services.