Small Cap PE, Venture Are Attractive To LPs

A recent study offers mixed messages to private equity managers raising new funds. Overall, the vast majority of limited partners say they expect to maintain or increase their allocations to private equity in 2013, according to the new survey from Preqin, issued in December. The exact number is 76 percent.

However, expectations appear less sanguine than a year earlier. The 15 percent, for instance, who said they expect to commit “slightly more” capital is down noticeably from the prior year.

The funds attracting the most interest from LPs are those targeting small-cap and mid-market buyouts, the study found. Slightly more than a third of LPs see these funds as offering the best investment opportunity in private equity. Just over half of the investors surveyed said they expect to invest in this asset class.

Venture came in second in terms of investment intentions. More than a quarter of LPs said they plan to invest—28 percent in fact—though only 17 percent said they viewed it as the most attractive place to invest. This was fourth on the list of most attractive investments after small-cap and mid-market buyout, distressed opportunity funds and large-scale buyout.

Distressed opportunity funds, large-scale buyout funds and secondary market vehicles all drew relatively strong investing interest from LPs. Twenty-three percent of LPs said they plan to invest in each asset class. Of the three, distressed was seen as the most attractive category in which to put money.

Preqin also found that the fundraising market remains active. The research firm says 1,940 private equity funds are on the road worldwide hoping to raise $795 billion. This is up 7 percent from 1,814 active funds a year ago.

Almost half of the funds are North America based. A quarter of them are from Europe.

Mark Boslet is a senior editor for Venture Capital Journal.