European Institutions Aim to Raise Allocations

Financial News, May 19, 2002 | Go to article overview

European Institutions Aim to Raise Allocations


Byline: Yasmine Chinwala

European institutions remain committed to investing in private equity despite the gloom and doom induced by the end of the tech boom, according to a new report. Nearly half the respondents in a survey by AltAssets, the research firm, said they wanted to increase their allocation to private equity. It surveyed 110 European institutional investors with more than [euro]3 trillion ($2.7 trillion) of assets under management.

The firms currently have [euro]89bn allocated to private equity, and expect to increase that total to [euro]102bn over the next five years.

More than 80% of European public pension funds plan to increase their allocation. This would put Europe as a whole on the same trendline seen in the UK.

Figures just published by the British Venture Capital Association show that UK pension funds almost doubled their exposure to private equity in 2001, taking it to [pound]1.6bn. Paul Myners' 2001 review of institutional investment encouraged pension funds to consider the importance of private equity in a diversified portfolio.

The AltAssets survey found investors were attracted by the superior risk-adjusted returns and diversification that private equity investment offers. But investors will be choosy about who manages their money.

Richard Sachar, chief executive of Almeida Capital which owns AltAssets, says: 'There's a lot of institutional money out there, but private equity funds are not doing what they might to get hold of it.'

Lack of liquidity was the top cause for reticence, particularly for pension funds and asset management firms. New private equity vehicles that allow for a greater degree of liquidity, such as listed or securitised products, have grown in popularity. But they still account for only 3% of funds committed to private equity.

Investors have to get used to a lack of transparency. They also have to acclimatise to the high management fees paid and having to spend internal resources on selecting providers.

Sachar says: 'New investors are used to the rate cards of other asset classes. There is more pressure on compensation methods for private equity funds, but generally investors are happy if their money is used the right way. …

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