Current LP Attitudes towards Distressed Private Equity – September 2012

by Joanna Nye

  • 18 Sep 2012
  • PE

An unstable financial climate and fears of an ongoing recession have meant that distressed private equity remains a popular choice among investors due to its countercyclical character. Preqin recently interviewed 35 investors that had previously indicated a preference for investing in distressed private equity with the aim of discovering their current attitudes towards the fund type and their intentions for future commitments.

Of those LPs interviewed, over a third (34%) expect to make their next distressed private equity fund commitment before the end of 2013, with half (17%) stating that they expect their next commitment to be made by the end of 2012. The majority of investors (46%) stated that they would make their next commitment to a distressed fund on an opportunistic basis, committing to a new fund should an attractive opportunity arise.

When asked about their opinions of distressed private equity following turbulence in the financial markets, over a third (37%) of LPs stated that their opinion of distressed private equity has been more positive, with the majority naming the opportunities for distressed private equity created by the financial crisis as the reason for this positive outlook. Over half (57%) of LPs stated that the financial crisis has not altered their opinion of distressed private equity; several LPs recognized that the financial crisis has created good opportunities for investment, but believe that opportunities were not lacking prior to this.

Preqin’s Investor Intelligence database currently tracks 4,496 active investors in private equity, and of these, 29% (1,289) have shown a preference for investing in distressed debt funds, including special situation and turnaround vehicles. Of these investors, the majority are North America-based LPs, which make up 69%, with Europe and Rest of World-based investors making up the remaining 20% and 11% of LPs respectively.

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