An Analysis of Under-Allocated Institutional Investors in Private Equity – September 2015

by Angela Sormani

  • 18 Sep 2015
  • PE

The amount of capital raised by private equity firms but not yet invested has been increasing since 2012, and has reached $1.3tn as of September 2015. This blog takes a look at those institutional investors which still have significant amounts of capital left to allocate, adding to this ever growing pot of private equity dry powder.

Preqin’s Investor Intelligence database currently tracks over 5,900 LPs active in private equity. Of this total, there are almost 800 institutional investors (representing 14%) investing in the private equity universe that have disclosed to Preqin that they are yet to reach their target commitments. These LPs have just under $13tn in assets under management collectively. Looking exclusively at those investors that have disclosed a target and current allocation to Preqin, it is the $320bn Singapore-based sovereign wealth fund GIC with the most significant amount left to commit to the asset class. The fund still has approximately $19.2bn waiting to find a private equity home, with a 9% current allocation of $28.8bn, significantly short of its 15% target allocation of $48bn.

The largest North America-based LP in terms of funds left to allocate to private equity is Montreal-based CDP Capital, currently $10.5bn below its target allocation of $30bn, representing the second largest amount of under-allocated funds after GIC. In Europe, the $60bn London-based bank HSBC Group has currently allocated only 1% of its private equity target and is waiting to commit a further $2.4bn to reach its 5% target allocation of $3bn – the largest under-allocated amount in Europe.

The $40bn private sector pension fund Porvenir still has half of its 10% target to allocate, leaving the Colombia-based LP with $2bn to invest in private equity. This is somewhat behind Africa’s largest LP in terms of funds left to allocate in order to meet its private equity target, with South Africa’s Government Employees Pension Fund currently $5.7bn short of its $10.1bn target allocation.

With large amounts of capital available to invest in the asset class, LPs may be concerned that high levels of dry powder are having an effect on company valuations, threatening to eat into potential returns. With this in mind, LPs may delay investments until dry powder levels fall, despite the outperformance of private equity compared to other asset classes and traditional investments over recent times.

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