coller capital's global p.e. barometer, winter 2008

8/14/2019 Coller Capital's Global P.E. Barometer, Winter 2008

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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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W i n t e r 2 0 0 8 0 92

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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W i n t e r 2 0 0 8 0 9 3

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 hr prva 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 compard wh hr

arg 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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W i n t e r 2 0 0 8 0 94

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 rasons why LPs mgh sll asss n h scondars

mark ovr h nx 2 yars*

LPs ha hav dclnd o r-nvs wh som of hr GPs ovr

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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W i n t e r 2 0 0 8 0 9 5

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)

Facors lkly o dr r-ups n h nx 12 monhs

LPs xpcng n annual rurns of 16%+ o hr prva quy

porfolos ovr h nx 3-5 yars

LPs mdan n rurns xpcaons for mga-buyou funds

sll n hr 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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W i n t e r 2 0 0 8 0 96

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 for h mdan gross mulpl of buyous

compld snc h sar of h crd crunch

(Figure 8)

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


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W i n t e r 2 0 0 8 0 9 7

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 prva quy nvsmn n h Asa-Pacfc rgon as a

prcnag of hr ovrall Pe porfolos

(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 aras for GP nvsmn ovr 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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W i n t e r 2 0 0 8 0 9 9

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 counrs n whch LPs nvs and plan o nvs n

h nx 3 yars

(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 for wak GPs o ras funds n h

Asa-Pacfc rgon

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 ovr

h nx 3 yars LP vws

(Figure 15)

(Figure 16)


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W i n t e r 2 0 0 8 0 910

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 growh of prva quy nvsmn n h

Mddl eas LP vws

th mos aracv scors for GP nvsmn n h Mddl eas

ovr h nx 3 yars 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 prva quy nvsmn n h Mddl eas as a

prcnag of hr ovrall Pe porfolos

(Figure 17)


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Coller Capitals Global PrivateEquity Barometer

Respondent breakdown Winter 2008-09


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coller capital's global p.e. barometer, winter 2008

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