Institutional investors in private equity have been increasingly satisfied with the asset class over recent years, and a big majority has a positive perception of the industry, alternatives data provider Preqin reported Thursday.
“This is largely due to private equity’s strong performance and record distributions, which have met or exceeded most investors’ expectations,” Christopher Elvin, Preqin’s head of private equity products, said in a statement.
In Preqin’s recent survey of 215 institutional investors, 84% reported that they had a positive perception of the asset class, while just 3% held a negative view.
As a result, 40% of investors said they expected to invest more capital this year than in 2016, while 49% expected to commit the same amount.
Preqin said this came at a time when recent strong fundraising had put global private equity dry powder at a record $820 billion as of the end of 2016.
The influx of capital has increased competition among fund managers for deal opportunities and pushed pricing upward. Managers worry that these pressures will affect future performance.
Seventy percent of investors cited valuations as the primary concern in 2017.
Among questions facing the private equity sector this year is whether fund managers will loosen their disciplined approach to investment as they try to put their money to work.
Preqin said these circumstances may partially explain why 14% of investors in the survey had reported reduced confidence in private equity’s ability to meet their objectives. Only 10% said they had become more confident.
In a similar vein, the survey found that return expectations had become more polarized. Six percent of investors said they now expected their private equity investments to perform only at the same level as public markets, the highest proportion since 2012.
At the same time, 49% of investors expected their portfolios to outperform public markets by more than four percentage points, up from 37% in 2014 and 40% in 2015.
Elvin said investors’ concerns that the buildup of dry powder was affecting asset pricing and competition for deals could also be seen in other alternative asset classes.
However, “the response of private equity investors seems to be less cautious than that of real estate or infrastructure investors,” Elvin said.
“In fact, private equity investors are raising their performance expectations, and looking to commit even greater sums of capital in 2017 than they have in the past year.”
— Check out Private Equity Robust in 2016, American Investment Council Says on ThinkAdvisor.