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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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