North America-Based Private Equity Investors’ Appetite for Buyout Funds – January 2015

by Joseph Borda

  • 14 Jan 2015
  • PE

Buyout funds continue to be one of the most sought after fund types for private equity investors. Preqin’s Investor Intelligence online service currently tracks 5,417 LPs, 30% of which are based in North America and demonstrate some level of interest in buyout funds. These North America-based institutional investors have aggregate assets under management of approximately $27.9tn.

As shown in the above chart, the largest proportion of North America-based LPs that show an interest in buyout funds are foundations and endowment plans, accounting for 20% and 18% of this group, respectively. Following closely are private sector pension funds (16%), public pension funds (12%), insurance companies (7%) and private equity fund of funds managers (7%).

North America dominates the buyout space globally, with nine of the top 10 investors in buyout vehicles based in the US. Partners Group, a Switzerland-based private equity fund of funds manager, is the only non-US-based investor in the top 10. The most prominent investor in buyout funds is California Public Employees’ Retirement System (CalPERS), with 348 previous buyout fund commitments.

An example of a North America-based LP that is actively targeting buyout vehicles over the coming year is State Farm. The $220bn insurance company will look to commit to between six and eight US-focused middle market buyout funds in the next 12 months. As a whole, North America-based private equity investors (excluding fund of funds managers) look set to continue targeting buyout funds, as the average current allocation (11.5%) is slightly below the average target allocation (12.5%).

Buyout vehicles will remain a staple investment for private equity investors due to the attractiveness of the fund type. Buyout strategies are often seen as a fast way for a company to grow because it allows the acquiring firm to align itself with other companies that have a competitive advantage in a specific area, and normally generates high returns. 

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