The proposals of President Barack Obama to prevent US financial institutions from participating in the private equity and hedge fund asset classes has put the focus on banks as investors in alternative assets. But what types of private equity funds do banks prefer to invest in, and how do these preferences compare to those of other institutional investors?
According to Preqin’s Investor Intelligence database, more than half (51%) of the banks active in the private equity space have either made commitments to buyout funds in the past or have a preference for buyout funds going forward. The most utilized strategy is venture capital, however, with approximately 70% of financial institutions demonstrating an interest in venture funds. Around one-fifth of banks and investment banks have invested, or would consider investing, in mezzanine funds, while 10% have exhibited a preference for special situation, turnaround and distressed debt vehicles. Nearly half (47%) of the banks investing in private equity have previously indicated that they would consider committing capital to funds managed by first-time or spin-out teams.
Investor Intelligence also shows that banks represent 8% of all investors interested in buyout funds. This is slightly lower than the proportion represented by insurance companies (9%), endowment plans and private sector pension funds (both 10%), and family offices and foundations (11%). Public pension funds and fund of funds managers each make up approximately 14% of investors that have either previously invested in buyout funds or would consider committing to such vehicles.
Banks comprise a similar proportion of all investors indicating an interest in venture capital funds and mezzanine funds (9% in each case). Public pension funds (12%), fund of funds managers (12%), family offices and foundations (10%) and endowment plans (10%) each represent a greater percentage of investors with a preference for venture funds. In the mezzanine space, public pension funds (23%), fund of funds managers (17%) and insurance companies (11%) each constitute a greater proportion of the total number of investors interested in the strategy.
For more information on US banks’ involvement in alternative asset classes and more on the wider effects that this proposal could have, please click here to see our latest press release.