With an aggregate €11.5tn in assets under management and an average 6.9% target allocation to private equity, institutional investors based in Europe are one of the largest sources of capital for private equity fund managers. However, with recent pressures on the stability of the Eurozone, the impending effects of regulation including Solvency II and the AIFMD, and concerns surrounding the level of competition for deals in a relatively saturated market, the status quo of Europe-based private equity investors is subject to change.
Preqin’s Fund Searches and Mandates tool currently tracks 297 Europe-based investors that are looking to make new commitments to private equity vehicles over the next 12 months. Seventy percent of these investors will target Europe-focused funds, 43% are targeting North American opportunities and 21% are looking to invest in Asia and emerging markets alike. It is unsurprising that Europe stands out as the number one investment destination; many LPs prefer to invest in funds that will encourage social and economic development in their domestic regions, and some are even bound by regulations and mandates as to where they can invest internationally. Therefore, despite the varying levels of confidence surrounding European economies, it is evident that Europe-based investors at large will continue to show a preference for Europe-focused funds and place their capital with fund managers focused on their home continent.
Buyout is the most prominent private equity fund type globally and this is evident among the investment preferences of Europe-based LPs. Preqin’s Investor Intelligence online service shows that almost half (49%) of Europe-based investors have previously invested in venture capital funds. The Fund Searches and Mandates tool highlights that 67% of the 297 investors looking to invest over the next 12 months will be specifically targeting buyout opportunities. Furthermore, Preqin’s latest Investor Outlook survey revealed that 37% of Europe-based LP respondents believe the best investment opportunities in 2015 are to be found in small- to mid-cap buyout funds.
Additional data from Preqin’s H1 2015 investor survey shows that a 74% majority of Europe-based investors intend to either maintain or increase the level of capital committed to private equity funds over the next 12 months compared with the previous 12 months. Therefore, despite external pressures that may be constraining private equity investments, it is clear that Europe-based investors will retain a healthy appetite for the asset class going forward and will continue to be a vital source of capital for private equity fund managers based in Europeand beyond.