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Institutional Investors in Global Private Equity Industrials: An Overview – October 2015

by Bishara Mansur

  • 12 Oct 2015
  • PE

The global industrials sector has undergone a fundamental change in recent decades as global manufacturing hubs have shifted from developed countries to emerging and frontier markets. This dramatic shift has brought about both new opportunities and challenges for institutional investors in private equity seeking exposure to this vital sector of the global economy. Preqin’s Investor Intelligence online service currently tracks 2,152 investors considering investing in industrials, with combined assets under management (AUM) of almost $63tn. Their average current allocation to private equity is 10.3% of total AUM, below the average target allocation of 11.2%, which indicates that these institutions will be seeking more investment opportunities in the coming year.

The large majority of institutional private equity investors with a preference for the industrials sector are based in traditional markets (North America, Europe and Asia), with the US, UK, Switzerland, Japan and China the most common locations for LPs. However, the composition of these institutional investors varies significantly between regions due to differing regulatory structures governing investments in illiquid funds.

While regulation is affecting the amount of capital North American banks can invest in private equity, banks outside the region benefit from less stringent regulation and are best positioned for investment given the sheer size of their AUM. Japanese banks, for example, are some of the largest investors with a preference for the industrials sector, with Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking Corporation, Mizuho Bank and Norinchukin Bank the most prominent in terms of AUM. In Europe, insurance companies and asset managers are major players, with UK- and Switzerland-based entities leading this group. Asia- and Middle East-based sovereign wealth funds are increasingly important investors in industrials, yet lag behind more traditional investors. It is expected that with the vast amounts of capital at their disposal, their long-term contrarian view and growing in-house capabilities, these institutions will become more prominent investors in the industry.

Of all private equity fund types, buyout and venture capital vehicles are the most prevalent targets for LPs with a focus on the industrials sector. Seventy-six percent of investors with a preference for industrials are looking to commit to buyout funds, slightly behind venture capital (77%). Growth (61% of investors), fund of funds (47%) and distressed private equity (46%) are other prominent strategies for institutional investors seeking opportunities in industrials. In regards to regional preferences, most institutional investors are likely to seek opportunities in traditional markets (i.e. North America, Europe and Asia), with most opportunities available in the automotive, shipping and aerospace sub-sectors.

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