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Europe-Based Pension Funds Are Looking to Make New Private Equity Commitments

by Francesca Braganza

  • 23 Oct 2012
  • PE

Preqin’s Investor Intelligence currently tracks 1,239 active private equity investors based in Europe, 236 of which are looking to make new private equity commitments over the next 12 months; a further 76 are taking an opportunistic approach over the coming year and are likely to commit capital to the asset class should favourable opportunities arise. The make-up of LPs by type that are looking to make new commitments is diversified, but public and private sector pension funds combined represent a significant 37% of all Europe-based investors that expect to make new commitments over the next 12 months.

These Europe-based pension funds have an appetite for a range of fund types. Of the 116 pension funds that are likely to be active in the private equity asset class over the coming year, 41% have expressed a preference for focusing on fund of funds vehicles. Fund of funds allow investors to access top-tier fund managers and reach a wide range of underlying fund types and geographies that they may otherwise be unable access due to a range of factors, such as a lack of capital or manager expertise. Almost a third (32%) of Europe-based pension funds have expressed a preference for buyout vehicles over the next 12 months.  

Geographically, Europe-based pension funds are looking to gain global exposure to the asset class over the next 12 months. Forty-six percent of the Europe-based pension funds looking to make new commitments have expressed a preference for domestic opportunities. North America still remains a popular investment destination, with 34% of Europe-based LPs expecting to commit to funds focusing on this region over the next 12 months, as difficult financial conditions continue to persist in their home region.

In a recent study carried out by Preqin, the vast majority (83%) of European pension funds stated they are looking to maintain their exposure to private equity over the next three to five years. Seventeen percent are looking to increase their allocation to the asset class and, encouragingly for fund managers looking to raise new vehicles, none of the pension funds are looking to decrease their exposure to private equity. Of those Europe-based pension funds looking to make new commitments to the asset class over the next 12 months, over two thirds (69%) expect to form some new GP relationships, as many LPs seek increasingly favourable terms and conditions and GPs with a strong track record.
Despite the instability of the financial markets over the past year, European pension funds remain committed to private equity, and are likely to remain active investors in the asset class over the next 12 months and beyond. Fund of funds vehicles appear a popular investment choice at present as investors seek a diverse portfolio of investments in these uncertain times. Although a number of LPs will re-up with existing managers in their portfolios, many will also look to form new GP relationships.

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