Private Equity Assets Reach $3 Trillion

Total assets under management held by private equity funds worldwide have reached a new milestone.

(July 30, 2012) — Worldwide private equity assets have hit the $3 trillion mark, according to Preqin.

Industry assets under management increased by 9% from December 2010 to December 2011, highlighting the sustained growth of the industry in spite of challenging wider economic conditions, the data firm said. The strongest period of growth of the private equity industry occurred between 2004 and 2007, when assets expanded by 136%, fueled by mega buyout funds, the firm noted.

“Private equity continues to be attractive to institutional investors that are willing to forgo liquidity in return for outperformance,” Bronwyn Williams, manager of performance data, said. “Despite the uncertainty and volatility that has prevailed in recent years, faith remains that private equity fund managers can still deliver these returns.”

Williams continued: “When examining the 10-year performance of the asset class it is clear that private equity can generate superior returns; however, our analysis also highlights the wide gulf between the performance of top and bottom quartile funds.”

Consequently, Williams concluded that the key issue for investors remains identifying, researching, and selecting the best potential fund managers for their portfolios.

Furthermore, the latest figures from Preqin show the gap between top and bottom quartile private equity funds’ performance has increased over recent quarters. The firm noted that 36% of fund managers with a top quartile fund go on to manage a top quartile successor fund. A total of 36% of bottom quartile managers remain in that quartile with their next offering, while 56% underperform the median benchmark.

Last year, another study from the firm found that amid an environment of market turbulence, nearly 25% of investors believe private equity is more attractive.

“The global financial crisis undoubtedly prompted many limited partners to re-evaluate their private equity strategies,” commented Emma Dineen, Preqin’s manager of private equity investor data, at the time. “Many have become more cautious and selective when choosing fund managers to invest with. However, despite recent volatility in the wider financial markets, investors generally remain positive about the private equity asset class, and many believe that there are good investment opportunities ahead.”

Dineen said that while investor appetite is there, the “crowded fundraising market means that investors are well positioned to be selective about the funds they choose to commit to, so the challenge remains for fund managers to market their funds in the best possible way and to ensure that they target the right investors if they are to enjoy success in this competitive market.”