For all the private equity firms waiting – patiently and impatiently – for limited partners’ moods to improve, the wait is over. According to a new LP survey by Preqin, the private equity data firm, LPs are moving squarely off neutral and into high-gear in terms of committing new funds.
More than three times as many LPs, about 46% of Preqin’s respondents, said they planned to increase the amount of capital that they commit to private equity during 2011, compared with 13% who said they planned to reduce their commitment levels. And of those LPs who planned to commit more in 2011, about two in every five said they said they planned to increase their commitments “significantly.”
The Preqin results echo another recent study – this one by Coller Capital – which reported that more than twice as many LPs planned to increase their target allocations to private equity in 2011 than planned to decrease their allocations. The Preqin results were more profound, revealing that more than three times as many LPs planned to increase their target allocations to PE over the next 12 months than planned to decrease them.
All of this comes simultaneously with a stepped-up degree of competition among private equity firms. In a separate survey, Preqin reported that there were now 1685 private equity firms in fundraising mode globally. Those firms are currently seeking $688 billion in capital. That compares with June 2010, when 1466 firms were seeking $605 billion.
But all the fresh competition could be helping to convince LPs to commit. Fully 57% of respondents to the Preqin survey reported that they planned to make a new commitment to a PE fund before the end of the year.
As for fund categories, LPs were decisive about what kinds of funds they planned to commit to. The most favored funds, according to Preqin’s respondents, were small and mid-market buyout funds. Nearly half the surveyed LPs, 49%, said that they planned to commit money to a small to mid-market buyout fund in the next 12 months.
Commitment plans lined up pretty well with LP assessments of what types of funds offered the best returns. Again, 49% of respondents said the best opportunities were to be found in small to mid-sized buyout funds. That compares with just 6% who said mega-buyout funds offered the best investor opportunities. Among respondents, only 9% said they planned to invest in a mega-buyout firm in the next 12 months.