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Global Private Equity Barometer Winter 2008-2009 - Coller Capital

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  • 8/14/2019 Global Private Equity Barometer Winter 2008-2009 - Coller Capital

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    A UNIQUE PERSPECTIVE ON THE ISSUES AND OPPORTUNITIES

    FACING INVESTORS IN PRIVATE EQUITY WORLDWIDE

    Global Private Equity BarometerWinter 2008-09

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    Coller Capitals GlobalPrivate Equity Barometer

    Coller Capitals Global Private Equity Barometer is a unique

    snapshot o worldwide trends in private equity a twice-yearly

    overview o the plans and opinions o institutional investors

    in private equity (Limited Partners, or LPs, as they are known)

    based in North America, Europe and Asia-Paciic.

    This edition o the Global Private Equity Barometer captured

    the views o 107 private equity investors rom all round the

    world. The Barometers indings are globally representative o

    the LP population by:

    Investor location

    Type o investing organisation

    Total assets under management

    Length o experience o private equity investing

    Contents

    Key topics in this edition o the Barometerinclude:

    LPs returns expectations & appetite or PE

    The secondaries market

    Buyout unds perormance multiples

    Pace o GP investment

    Attractive areas or GP investment

    Asia-Pacifc PE market

    Middle East PE market

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    Investors appetite or privateequity remains strong

    The recent downturn in the global economy and fnancial

    markets has not dented investors appetite or private equity

    97% plan to maintain or increase their target allocation to

    private equity over the next year, which is broadly in line with

    their intentions in recent years.

    (Figure 1)

    LPs plannd changs o h pva quy allocaon n h

    nx 12 monhs

    Winter2004-05

    Winter2005-06

    Winter2006-07

    Winter2007-08

    Winter2008-09

    Increase Stay the same Decrease

    Two thirds o LPs to reach orexceed target PE allocation

    in 2009

    By the end o 2009 two thirds o LPs (66%) are likely to be at,

    or above, their target private equity allocations.

    GPs planning new unds in 2009 should take note: North

    American LPs (28%) are more likely to have exceeded their target

    allocation than European LPs (14%) or Asia-Pacifc LPs (19%).

    LPs ancpad lvl of Pe commmns compad wh h

    ag Pe allocaons a nd 2009

    (Figure 2)

    Our commitments will be in excess of our target allocation

    Our commitments will be approximately equal to our target allocation

    Our commitments will be lower than our target allocation

    All LPs North AmericanLPs

    Asia-PacificLPs

    EuropeanLPs

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    Secondaries market will playa variety o roles or LPs

    The secondaries market will be a valuable tool or private equity

    investors in the months and years ahead. They will use it not

    only to boost liquidity, but also to change the shape o private

    equity portolios.

    Unsurprisingly, two thirds o LPs (64%) cite a requirement

    or increased liquidity as a driver o the secondaries market

    in the next two years. But almost equal proportions point to

    the need to re-ocus resources on the best-perorming GPs

    (61%) and to re-balance portolios between dierent types o

    private equity (59%).

    Nearly hal o LPs (45%) say re-directing resources to other

    asset classes or uses will also be important especially to

    investors who fnd themselves over-allocated as a result o

    alling stock markets.

    North American LPs have beenreadiest to reuse re-ups

    The proportion o investors that has reused to re-invest with

    one or more o their existing GPs varies widely around the

    world: 4 out o 5 North American LPs (79%) have done so in

    the last year, compared with only hal o Asian LPs (52%).

    Man asons why LPs mgh sll asss n h scondas

    mak ov h nx 2 yas*

    LPs ha hav dclnd o -nvs wh som of h GPs ov

    h las 12 monhs

    * excluds funds-of-funds

    (Figure 3)

    Reduce volatility ofportfolio returns

    Increase liquidity

    Re-focus resources onthe best-performing GPs

    Re-direct resources toother asset classes/uses

    Re-balance portfolio betweentypes of PE (e.g. between

    venture and buyouts)

    Lock-in returns

    Declined some re-investment requests

    Re-invested with all GPs

    North American LPs European LPs Asia-Pacific LPs

    (Figure 4)

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    Poor GP perormance and styledrit will prompt the mostre-up reusals

    Two thirds o LPs expect to reuse re-up requests in the coming

    year. Poor perormance o a GPs most recent und and GP

    investment style drit are their biggest concerns.

    LPs remain optimistic aboutmedium-term PE returns

    43% o investors expect to achieve returns o at least 16%

    across their private equity portolios over the next 3-5 years.

    Clearly, their estimate takes into account both the difculties

    that the downturn spells or their existing private equity

    investments and the buying opportunities GPs will have over

    the next year or two.

    LPs expect less than a1.5x return rom todaysmega-buyout unds

    The majority o investors (69%) expect the current crop o

    mega-buyout unds to yield a median net return o less than

    1.5 times.

    (Figure 5)

    (Figure 6)

    (Figure 7)

    Facos lkly o d -ups n h nx 12 monhs

    LPs xpcng n annual uns of 16%+ o h pva quy

    pofolos ov h nx 3-5 yas

    LPs mdan n uns xpcaons fo mga-buyou funds

    sll n h nvsmn phas

    Style drift at a GP

    Staff turnover within a GP

    Continuity/succession issues at a GP

    Terms & conditions of a GP's fund

    GP conflicts of interest

    Poor performance of a GP's most recent fund 1

    2

    3

    4

    5

    6

    Changes to an LPs PE strategy

    Capital constraints at an LP

    Poor reporting/transparency from a GP

    Apportionment of carry within a GP's team

    7

    8

    9

    10

    Winter

    2004-05

    Winter

    2005-06

    Winter

    2006-07

    Winter

    2007-08

    Winter

    2008-09

    Less than 16%16% or more

    Less than

    1.0x

    (7%)

    1.0-1.49x(62%)

    1.5-1.99x

    (27%)

    2x or

    more

    (4%)

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    Small buyouts to outperormother buyouts

    Investors believe that small (lower mid-market) buyout

    investments completed since the start o the credit crunch will

    outperorm other buyouts. 41% o LPs expect small buyouts to

    achieve a median multiple o at least two times compared

    with just 26% and 5% o investors expecting such returns rom

    mid-market and large buyouts respectively.

    Lower mid-market to bemore buoyant or deallowthan other areas

    LPs believe large buyout unds [i.e. unds in excess o $3bn] will

    fnd it more challenging to fnd good investment opportunities

    over the coming year than other und types. 83% o investors

    expect lower mid-market buyout unds to call the same amount

    or more money in the coming year compared with just 31%

    o LPs who eel the same or large buyout unds.

    LPs xpcaons fo h mdan goss mulpl of buyous

    compld snc h sa of h cd cunch

    (Figure 8)

    1.0-1.49x Less than 1.0x1.5-1.99x2x or more

    Mid-market buyouts($200m $1bn)

    Large buyouts(>$1bn)

    Small buyouts($3bn)

    Mid-marketbuyout funds

    ($500m-$2.9bn)

    Lower mid-marketfunds

    (

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    Investors plan increasedexposure to Asia-Paciic region

    Less than hal o North American LPs (41%) have 6% or more

    o their private equity investment targeted at the Asia-Pacifc

    region. Within three years this proportion will have risen to

    almost 70%.

    For European LPs the picture is similar with a third o

    investors (32%) having 6% or more o their private equity

    investment in Asia-Pacifc now and almost two thirds (61%)

    expecting the region to account or 6%+ in three years.

    Asia-Pacifc LPs, already the most active investors in their own

    region, will continue increasing their exposure. Almost a third

    o investors (30%) currently have an Asia-Pacifc exposure o

    more than 20%. This will increase signifcantly, to a hal o

    Asia-Pacifc LPs, in three years.

    Now In 3 yearstime

    Now In 3 yearstime

    Now In 3 yearstime

    20%

    LPs pva quy nvsmn n h Asa-Pacfc gon as a

    pcnag of h ovall Pe pofolos

    (Figure 11)

    Buyouts oer best GPinvestment opportunities inthe coming year

    Investors believe (small) buyouts will provide the best

    opportunities or GP investment in all areas o the world during

    the year to come with buyouts in the Asia-Pacifc region being

    the most attractive.

    th bs aas fo GP nvsmn ov h nx 12 monhs

    LP vws

    (Figure 10)

    European buyouts

    North American buyouts

    North American venture

    Asia-Pacific venture

    European venture

    Asia-Pacific buyouts 1

    2

    3

    4

    5

    6

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    th ways LPs aound h wold cunly accss Asa-Pacfc Pe

    th ways LPs aound h wold wll accss Asa-Pacfc Pe

    n 3 yas m

    (Figure 13)

    North American LPs European LPs Asia-Pacific LPs

    Country funds Regional funds Funds-of-funds

    North American LPs European LPs Asia-Pacific LPs

    Country funds Regional funds Funds-of-funds

    European LPs less ocused onAsia-Paciic region

    European investors are less ocused on Asia-Pacifc private

    equity than investors rom North America or Asia. While around

    a third o both European and North American LPs are invested

    in pan-Asian unds and unds-o-unds, 38% o North American

    investors invest in country-specifc Asian unds compared with

    just 13% o European LPs.

    LPs located in Asia-Pacifc invest heavily in their own region, as

    you might expect: 82% are invested in country-ocused unds

    and almost hal (47%) invest in pan-regional unds.

    LPs will expand their usage oall routes to market

    The greater exposure o Asian and North American investors

    to Asia-Pacifc private equity is set to continue although LPs

    rom all over the world plan to increase their exposure to the

    region over the next three years.

    Within this period the proportion o North American LPs

    invested in country-specifc Asian unds will have grown to

    60% (compared with 43% o European and 94% o Asian

    investors). Over three quarters o North American LPs (77%)

    expect to invest in pan-regional unds (compared with 60% o

    European and 84% o Asian LPs).

    (Figure 12)

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    Weak GPs ind it too easyto raise unds in Asia-Paciic,LPs say

    The increasing attractiveness o the Asia-Pacifc region as

    a destination or LP investment may be a double-edged

    sword. Over three quarters o investors (78%) think the ready

    availability o capital is making it too easy or weak GPs to

    raise unds in the region.

    Asa-Pacfc couns n whch LPs nvs and plan o nvs n

    h nx 3 yas

    (Figure 14)

    India China Japan Australia Other TaiwanKorea

    Currently invest Plan to invest in next 3 years

    India and China are LPsmost avoured investmentdestinations

    The high-growth markets o India and China oer the best

    private equity investment opportunity in the Asia-Pacifc region

    according to LPs. These markets are ollowed by the developed

    economies o Japan and Australia.

    No, its not too easy(22%)

    Yes, its too easy(78%)

    LPs blvng s oo asy fo wak GPs o as funds n h

    Asa-Pacfc gon

    Obstacles acing PE investmentin India, China and Japan

    Investors believe increasing competition between GPs and

    a scarcity o private equity talent will be signifcant barriers

    to private equity investment in India and China in the next

    three years. The regulatory and tax environment is seen as a

    particular obstacle to investing in China (59% o LPs).

    A shortage o established GPs, economic slowdown, and a

    weak exit environment are seen as the greatest obstacles to

    Japanese private equity.

    JapanChinaIndia

    Limited access tocapital markets

    Scarcity ofPE talent

    Limited number ofestablished GPs

    Increasingcompetition for deals

    Regulatory/tax environment

    Too few good managers

    for portfolio companies

    Economicslowdown

    Entrepreneurs reluctantto share ownership

    Weak exitenvironment

    Obsacls facng Pe nvsmn n inda, Chna and Japan ov

    h nx 3 yas LP vws

    (Figure 15)

    (Figure 16)

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    Signiicant barriers exist

    Investors identiy a lack o credible GPs (95% o LPs) and

    geopolitical risk (93% o LPs) as the most signifcant obstacles

    to the growth o private equity in the Middle East.

    Three quarters o investors (74%) claim their own lack o

    knowledge o the region is also a major obstacle.

    Natural resources tops list oLP target sectors

    LPs believe the sectors oering the most attractive investment

    opportunities or GPs in the Middle East over the next three

    years are natural resource extraction, real estate, and retail and

    leisure.

    Obsacls o h gowh of pva quy nvsmn n h

    Mddl eas LP vws

    th mos aacv scos fo GP nvsmn n h Mddl eas

    ov h nx 3 yas LP vws

    (Figure 18)

    Significant obstacle Not a significant obstacle

    Too few credible GPs

    Geopolitical risk

    Lack of local talent

    LPs lack of knowledge

    Lack of quality assets

    Limited access tocapital markets

    Unfavourable legal/regulatory environment

    Limited exit opportunities

    Respondents (%)

    (Figure 19)

    Very attractive Attractive

    Respondents (%)

    Unattractive

    Oil, mining &natural resources

    Real estate

    Retail & leisure

    Healthcare

    Technology/biotechnology

    Industrial manufacturing

    & services

    Financial services

    LP exposure to Middle East togrow over the next 3 years

    The Middle East attracts a tiny raction o LPs private equity

    investments just 3% o North American investors and 10% o

    Asia-Pacifc investors currently invest in the region.

    This is set to change over the next three years, as 48% o Asia-

    Pacifc LPs, 32% o North American LPs and 21% o European

    investors plan to target some o their private equity investment

    specifcally at the region. For most investors, investment in the

    Middle East in three years time will still not represent more

    than 5% o their total private equity exposure though 1 in 10

    Asian LPs plans an exposure o between 6-10%.

    Now In 3 yearstime

    Now In 3 yearstime

    Now In 3 yearstime

    North American LPs European LPs Asia-Pacific LPs

    6-10%1-5%0%

    % of PE portfolio targeted at the Middle East

    LPs pva quy nvsmn n h Mddl eas as a

    pcnag of h ovall Pe pofolos

    (Figure 17)

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    Coller Capitals Global PrivateEquity Barometer

    Respondent breakdown Winter 2008-09

    The Barometer researched the plans and opinions o 107

    investors in private equity unds. These investors, based in

    North America, Europe and Asia-Paciic, orm a representative

    sample o the LP population worldwide.

    About Coller Capital

    Coller Capital, the creator o the Barometer, is the leading

    global investor in private equity secondaries the purchaseo original investors stakes in private equity unds and

    portolios o direct investments in companies.

    Research methodology

    Research or the Barometerwas undertaken or Coller Capital

    in August-October 2008 by IE Consulting, a division o

    Initiative Europe (Incisive Media), which has been conducting

    private equity research or 20 years.

    Notes:Limited Partners (or LPs) are investors in private equity unds

    General Partners (or GPs) are private equity und managers

    In this Barometerreport, the term private equity (PE) is a

    generic term covering venture capital, buyout and

    mezzanine investments

    Asia-Pacific(20%)

    Europe(40%)

    NorthAmerica(40%)

    rspondns by gon

    (Figure 20)

    $500m-

    $999m

    (5%)

    $1bn-$4.9bn

    (20%)

    $5bn-$9.9bn

    (16%)

    $10bn-$19.9bn

    (15%)

    $20bn-$49.9bn

    (13%)

    $50bn+(26%)

    Under

    $500m

    (5%)

    rspondns by oal asss und managmn

    (Figure 21)

    Insurancecompany

    (16%)

    Public

    pension fund(22%)

    Government-owned organisation

    (7%)

    Corporatepension fund

    (9%)

    Otherpension fund

    (7%)

    Corporation(2%)

    Endowment/foundation

    (15%)

    Familyoffice/private trust

    (5%)Bank/assetmanager

    (17%)

    rspondns by yp of ogansaon

    (Figure 22)

    1985-9

    (9%)

    1990-4

    (12%)1995-9

    (27%)

    2000-4

    (22%)

    2005-8

    (7%)

    1980-4

    (16%)

    Before

    1980

    (7%)

    rspondns by ya n whch hy sad o nvs n

    pva quy

    (Figure 23)

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