(July 9, 2013) — Private equity assets make up exactly a third of all alternative investments by large institutions–and Goldman Sachs holds the largest chunk of them, according to research by Towers Watson.
The consulting firm’s annual alternatives survey showed the investment bank had the largest amount of institutional investor cash in its funds–some $68 billion at the end of 2012.
This included allocations from pension funds, insurance companies, sovereign wealth funds (SWFs), endowments, and foundations.
Second to Goldman Sachs was Blackstone Capital Partners, with just over $57 billion, followed by TPG and the Carlyle Group with around $54 billion each.
These companies were counted as some of the largest alternatives managers in the world-within the top 11–in a cohort led by Macquarie, which had $94 billion invested in direct infrastructure funds at the end of 2012.
Kohlberg, Kravis, Roberts, with $45 billion, was in line after Carlyle and AlpInvest was the first fund-of-private-equity-funds on the list at number 17 with $44 billion.
This ranking broadly reflects investor attitude across private equity–direct funds seem to be twice as popular as fund of funds.
As a whole, there are 21 direct funds, compared to 12 fund-of-funds. Assets in direct funds totalled $716.7 billion, compared to $315 billion in fund-of-funds.
Pension funds retain a bias towards fund-of-funds in this sector, the survey showed. At the end of last year, they had allocated $260 billion to companies running these indirect vehicles, compared to $189 billion to direct ones.
Towers Watson said the allocation to the asset class had grown over 2012: direct vehicles outstripped their indirect peers, however, with an uptick of 7% compared to 12%.
“Funds-of-funds continue to grapple with the evolving landscape in which the appetite for traditional comingled solutions is diminishing further,” the survey said. “These managers are now focused on separate accounts and co-investments, increasing the complexity of their business… Large, sophisticated investors with significant capital and governance to budget to deploy in private equity are increasingly co-investing alongside with favoured managers.”
In February, aiCIO reported on the New Jersey public pension fund’s co-investment strategic partnership with Blackstone.
The above state of play is echoed in the insurance sector, but with much smaller asset levels.
SWFs, however, have too few assets in fund-of-private-equity-funds to merit being counted in this survey. But they held $57 billion in direct private equity investments, making it one of the most prominent asset classes held by the sector–from a 29% allocation of the entire alternatives portfolio to a 37% holding, at the expense of hedge funds.
Endowments and foundations remained the greatest fans of private equity funds, but even their interest has waned, the survey showed.
In 2011, some 45% of these institutions’ portfolios were given over to direct private equity investments; a year later, just 37% was allocated to them. Beneficiaries of this move included private equity fund-of-funds-moving from 6% to 8%–and direct real estate funds–9% to 19%.
Bain Capital was the darling of this section of investors, with total assets from the community beating any other alternative investment manager of more than $8.2 billion.
The future method for private equity funds of all types is set to be trickier.
“Investors are focusing more on managing their illiquid investments holistically, meaning many private equity managers are competing for capital with other illiquid strategies such as private debt, infrastructure, and real estate,” Towers Watson said.
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