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LPs views of distressed private equity.

by Tom Carr

  • 11 Oct 2011
  • PE

Since the financial crisis, distressed private equity has been an increasingly popular choice for LPs investing in private equity. Such funds are second only to small to mid-market buyout vehicles amongst LPs looking to allocate capital to private equity. Continued economic problems have lead to an increase in the popularity of distressed private equity; while demand for fund types such as venture and buyout is correlated to economic growth the opposite is true of distressed private equity opportunities. Economic problems lead to an increase in viable distressed private equity opportunities for fund managers.

 

Preqin currently tracks 973 LPs that have previously invested in, or stated a preference for investing in, distressed private equity. When broken down by location, nearly two thirds (64%) of investors with a preference for distressed private equity are based within the North America, with 22% based in Europe and the remaining 13% are based in Asia and rest of world. 

Preqin recently conducted interviews with 50 prominent LPs that have an interest in investing in distressed private equity vehicles in order to gain an insight into their preferences and future plans. The results indicate that LPs are positive about distressed private equity opportunities since the financial crisis. Over a third (35%) of respondents told us that their opinion of distressed private equity had become more positive since the financial downturn, with a further 41% telling us that their opinions of distressed private equity has stayed the same. Only 14% of respondents feel more negative towards distressed private equity since the financial crisis.

Geographically, the more developed markets in North America and Europe are seen to be the most attractive amongst LPs investing in distressed private equity, with 82% and 65% respectively naming these regions as presenting good opportunities. In contrast, only 20% named Asia and 12% named Rest of World as offering good distressed private equity opportunities in the current market.

Going forward, investors remain positive about distressed private equity, 29% of respondents told us they expected to commit further capital to a distressed private equity vehicle before the end of 2011, with a further 21% of respondents looking to commit capital in 2012. A further 38% of LPs interviewed are looking to commit to distressed private equity on an opportunistic basis and could also commit within that time frame.

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