European LPs still keen for more PE

Forthcoming research suggests 40% of European LPs plan to increase their private equity allocations next year, with many seeking new managers.

Good news for all those managers on the fundraising trail: a sizeable majority of investors around the world are planning to make fresh commitments to the asset class in the next twelve months, according to new research by investment advisory platform CEPRES. 

And despite Europe's macroeconomic woes, the region's LPs seem to be the most bullish: about 40 percent are planning to increase their private equity allocation, while almost all the rest intend to maintain allocations at current levels.

Outside Europe, the picture is similarly encouraging. Only a small minority are considering cutting their allocation to the asset class. However, in the US, a smaller proportion (just under 20 percent) are planning to increase their exposure to private equity, with a similar percentage in the rest of the world planning to do so.

The figures, contained in the 2012 edition of the CEPRES PE Market Watch Global Community Outlook, also contained another bit of good news for GPs: 92 percent of LPs are planning to make commitments to new managers in the next year, as opposed to just re-upping with their current managers. At a time when a similar proportion of GPs are trying to expand their investor base, that's a welcome development.

The report found GPs outside Europe and North America were the most bearish on fundraising: 50 percent said they expected fundraising conditions to deteriorate in the next twelve months, a much higher proportion than in the more developed markets of Europe and North America. 

However, these managers may be worrying unnecessarily: according to CEPRES, Europe and North America will only account for about half of the LP capital invested in the next 12 months. In fact, Asia looks set to be the most popular investment destination for LPs: around 35 percent of the total capital invested is expected to be in Asia, compared to 27 percent in Europe and 25 percent in North America.

The research also found that nearly half of LPs are spending at least six months doing due diligence before making a fund commitment – which adds up to a huge amount of time across a diversified portfolio. However, this was the first time CEPRES has included this question in their survey, so it was unable to say whether this figure has gone up or down in the last year.

The CEPRES PE Market Watch Global Community Outlook is based on a survey of around 200 LPs and GPs, who collectively have around $850 billion of private equity assets under management.