Limited partners expect to deploy more capital into private equity in the next 12 months than in 2016.
The findings come from the Rede Liquidity Index, a new benchmark launched by fundraising advisor Rede Partners to assess investor sentiment.
The report analysed the responses of 160 LPs representing more than €5 trillion in assets under management and around €1 trillion in capital allocated to private equity. A baseline score of 50 represents no change, a score above 50 indicates an improvement and a score below 50 indicates a decline.
The RLI assigned investor appetite towards private equity an overall score of 67, indicating investors intend to deploy more capital in the next 12 months relative to the last 12 months. European LPs were particularly enthusiastic with a score of 71.
Within this, investors in the DACH region were the most bullish at 77, with 62 percent looking to deploy more and just 8 percent expecting to deploy less. Similarly, in the Nordic region, which received 76, 52 percent of LPs expect to deploy more and no investors expect to deploy less.
However, there were significant differences between types of investors: asset managers and insurance firms are the most likely to increase commitments to the primary market, with a score of 72 and 71 respectively, whilst pension funds, with a score of 50, indicated their commitments would remain stable compared to 2016.
“The long-term nature of the asset class provides a degree of insulation from widespread economic and political uncertainty while providing significant market opportunities in which investors can generate attractive returns,” Rede partner and co-founder Scott Church said in a statement.
“While not all LP groups are equally bullish, the fact remains that the industry looks set to continue to attract significant inflows throughout 2017.”
The findings chime with those of the PEI Perspectives 2017 survey, to which almost 28 percent of respondents globally indicated they plan to increase their target allocation to the asset class in the next 12 months, while 37 percent will keep it the same. Just 3 percent intend to decrease their target allocation.
Funds of funds were the most keen on forming new GP relationships, with a score of 75, while pension funds expect to allocate less to new relationships. Investors with a private equity allocation of more than €30 billion are also intending to focus their energies on existing relationships rather than new relationships.
When it comes to distributions, on the whole investors are expecting them to remain consistent with 2016. Pension funds are the most optimistic that distributions will increase, with a score of 74, while family offices, insurance firms and consultants expect them to decrease.
The research found a split between funds of funds and consultants on the one hand, and the rest of the LP community on the other regarding appetite to deploy capital into the secondaries market. The former – investing through their own managed vehicles – had a score of 71, while those making commitments to third-party managed secondaries vehicles, such as pension funds, endowments and family offices, had 44.