Make-up of Investors Looking to Invest in Private Equity via Separate Accounts – February 2013

by Francesca Braganza

  • 19 Feb 2013
  • PE

Separate account mandates provide investors with a means of customizing and having more direct control over their activity in the private equity asset class, and consequently allow them to diversify and add value to their portfolios. Forty-five percent of active investors on Preqin's Investor Intelligence database are currently expressing some level of interest in separate accounts. These LPs have a combined $7.7tn in assets under management, and $355.5bn currently allocated to private equity.

Of the active investors showing an interest in investing via separate account mandates, 55.5% are based in North America, 28.5% in Europe, and the remaining 16% are investors based in Asia and Rest of World regions, spanning from South Korea to Chile. When looking at the make-up of these investors, public pension funds are the most prevalent type, representing 34% of all investors showing a preference for separate account mandates. This may be due to them being some of the most sophisticated investors in private equity with the largest typical fund commitments, meaning that separate accounts are a more practical option. Private sector pension funds represent 14% of the total investors, making them the second most prevalent investor type, with endowments and foundations making up an additional 13%.

Seventy-five percent of investors showing an interest in separate account mandates have previously gained exposure to private equity via this means or are actively seeking opportunities to do so, with the remaining 25% considering doing so in the future.

Preqin recently carried out a study of 100 investors in private equity, and found that 15% of respondents had previously awarded separate account mandates to fund managers. Fifty percent of these stated that separate account mandates are an established part of their investment strategy, with a further 43% stating that they are considering making separate account mandates part of their strategies in the future.

One investor that seeks to gain exposure to private equity through separate accounts is Cook County Pension Plan. At the end of 2012, the $7.9bn public pension fund hired Mesirow Financial Private Equity to run a separate account on its behalf. The $150mn account will commit to buyout, venture capital, mezzanine and distressed private equity funds, and at least 30% of the capital will be invested in international private equity.

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