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Individual, Institutional Investors Favor Private Equity

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Private equity and venture capital appear to be in robust shape as we head into 2015.

Tiger 21, the peer-to-peer network of ultra-wealthy investors, recently reported that member allocations to private equity had increased in recent years, and now stood at about 20% of members’ portfolios.

The same appears to be true for public pension funds. Preqin, the investment alternatives data provider, found that the number of active U.S.-based public pension funds in private equity has risen year over year, from 266 in 2010 to 299 in October 2014. The average allocation to private equity was 7% as of October 2014, down from 7.2% a year earlier.

Preqin said private equity looked set to remain an important component of U.S.-based public pension funds’ portfolios for years to come, offering investors good portfolio diversification and outsized returns over the long term.

Fundraising for the year was likely to be strong, Preqin reported, with $254 billion raised by funds that closed in the first half.

A record 2,205 funds are currently in the market seeking an aggregate $774 billion, compared with 2,098 funds that were looking to raise $733 billion in January.

Preqin also reported that its internal data showed co-investment would increase in 2014. It acknowledged that concerns about high expenses and competition were holding back some general partners from offering co-investment opportunities. But researchers found that co-investment figured prominently in the plans of many GPs and limited partners.

Preqin said that as the private equity industry matures and investors become more sophisticated, co-investment activity could increase, with benefits for both fund managers and limited partners.

Venture Capital

In other research, Preqin found encouraging signs that venture capital was finally emerging from the doldrums following the dot-com crash. Returns have significantly improved and fundraising has picked up, especially as market conditions have become more favorable.

Preqin said 56% of venture capital investors surveyed in October planned to make their next commitment to a fund by the end of 2015.

Venture capital funds produced average returns of 27% for the year to March 2014, Preqin reported. This was higher than for any other private equity strategy over the same period.

Moreover, for the three years to March 2014, venture capital products returned an average 12.7%, on par with Preqin’s All Private Equity benchmark.

As of October 2014, 220 venture capital funds that had reached a close raised $38 billion—already ahead of the $31 billion raised by 274 funds that closed in 2013.

At present, some 581 venture capital funds are currently in market, more than at any other point in the period from 2007 to 2014.

Venture capital firms invested $105 billion in portfolio companies during the first three quarters of this year, more than in any other entire year since 2007.