Preqin’s Investor Intelligence database tracks 2,931 institutional investors based in North America, with 1,106 of these LPs indicating a preference for, or have invested previously in growth vehicles. Though buyout funds and venture capital vehicles prove to be the most sought after fund types for North America-based LPs, with 54% and 57% of investors targeting opportunities in these fund types respectively, growth funds (38%) clearly make up an integral part of investment portfolios for diversification purposes.
North America-based LPs that have a preference for and have previously invested in growth funds have an aggregate AUM of $24tn. Using statistics of averages, Preqin’s data suggests that North America-based investors in growth funds, excluding fund of funds managers, are generally below their target allocation to private equity; these LPs have a current average allocation of 12.7% compared to an average target of 13.2% of total assets.
Of the North America-based investors that target and have previously invested in growth funds, the largest proportion shows an investment preference for North America-focused vehicles (35%). This is likely due to the familiarity these LPs have with their domestic North America-based GPs. However, it is evident that some North America-based LPs also target funds that invest in various other geographies such as Europe (24%) and Asia (23%). Interestingly, 23% of the LPs that target growth funds prefer to invest in emerging markets. One such investor is Texas County and District Retirement System (TCDRS), which has recently committed $20mn to Lightspeed Venture Partners X, a growth fund that makes expansion stage investments in various regions including India.
Among the LPs actively seeking investments in growth funds are Emory University Endowment and the Gordon and Betty Moore Foundation. The endowment plans to target emerging markets and North America-focused growth vehicles in 2014 while the foundation will look for US, Europe, and Asia-focused growth funds during this time. District of Columbia Retirement Board (DCRB) has recently committed $25mn to Spectrum Equity Investors VII, a US-focused growth vehicle that targets companies in the information services, software, and internet/digital media sectors. Appetite stemming from North America-based LPs for growth vehicles looks likely to endure through 2014, as the fund type continues to provide investors with exposure to companies with great upside potential.