Private equity investment boom continues

Here’s why

Investor sentiment to the private equity industry has remained resilient with LPs expecting to allocate more to the asset class in the 12 months ahead, according to the latest H2 figures from the Rede Liquidity Index (RLI), an industry benchmark assessing investor sentiment towards the asset class. 

In total 90 per cent of LPs surveyed said they expect to deploy more or the same amount of capital to primary funds in the year ahead leading to an overall RLI score of 62 – this already follows record volumes of fundraising in 2016 and H1 2017. 

The findings are based on the views of 165 global institutional LPs, representing over €6 trillion in assets under management and approximately €1 trillion in capital allocated to private equity.

Similar to the Purchasing Managers Index (PMI), a baseline score of 50 represents no change, whilst a score above 50 indicates an expectation to increase private equity commitment over the next 12 months. A score beneath indicates an expectation to deploy less.

Co-investments hugely popular amongst LPs with increased demand expected

New data for the second edition of the RLI shows that co-investment opportunities are increasingly important for LPs when looking to deploy capital in private equity.

41 per cent of those surveyed expected to deploy more via co-investment opportunities in the year ahead delivering a strong RLI score of 69 – in this regard, LPs’ sentiment is even more positive than that towards primary funds (62). Only 2 per cent said they would deploy less.  

Across the board, LPs were planning to invest more via co-investments with Family Offices (77) the most likely, followed by fund of funds and pensions funds (71).

Commenting Adam Turtle, Partner and Co-founder at Rede Partners said: “It is clear that co-investments are crucial for many LPs when allocating capital to private equity. This creates both opportunities and risks for GPs. On the one hand it can deepen the relationship between them and their investors, as there is no better way to get to know a manager than through investing in a direct deal with them. On the other hand it can lead to disgruntled investors if co-investment demand is not met, and pressure to go “off strategy” in order to cater to it.  What is clear is that enthusiasm for co-investment is here to stay and GPs must adapt accordingly.”   

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