A recent survey of private equity and venture capital managers showed competition was increasing among firms, pushing pricing levels up and making it harder to find attractive investment opportunities.
At the same time, it found an increase in investor appetite across the spectrum of limited partner types, and that the asset class was gaining prominence with investors outside traditional markets.
Preqin, an alternatives data provider, surveyed 260 private equity and venture capital managers in November about issues affecting their sector and their outlook for the coming year.
Fifty-four percent of managers said there had been an increase in competition for private equity transactions compared with a year earlier, while 39% said levels had remained the same.
Responses differed according to strategy. Sixty-six percent of buyout firms said they had experienced more competition, compared with 44% of growth firms that said this and 38% of venture capital firms.
Preqin noted that the increased availability of debt and growing dry powder levels would likely put pressure on pricing levels, possibly affecting returns.
The increase in competition and pricing would underscore the need for funds to develop different ways to create value, it said.
Forty-four percent of respondents reported that they were reviewing more investments opportunities than a year ago, while only 6% said they were reviewing fewer.
The vast majority of managers agreed that they were finding the market harder to navigate.
Thirty-seven percent of respondents said fundraising was their biggest challenge in the new year, while 32% cited valuations, 29% performance, 29% continuing volatility and uncertainty in global markets, 28% exits and 27% regulation.
Again, Preqin found that variation existed between firms with different strategies. Buyout firms, for example, were most concerned about valuations and regulation.
Venture capital managers said performance was their key issue — despite having generated the best one-year returns of any private equity fund type, indicating, Preqin said, that managers were feeling investor pressure to deliver consistent returns.
Bump-Up in Investor Appetite
According to the survey, 57% of managers said they had seen increased investor appetite, particularly among family offices, compared with a year earlier.