Data Room: Concerns over competition

DR investor fears 411

Heightened competition for deals and declining returns are the chief concerns for limited partners, according to the latest Coller Capital Global Private Equity Barometer.

Nearly 90 percent of LPs surveyed picked the two areas as their biggest worries, compared with 71 percent four years ago, says the study published in June.

The California Public Employees Retirement System reflected this sentiment in its market valuation analysis, which was also published last month.

It noted that the price to EBITDA multiples paid in buyouts were more than 10.5x as of 31 March, above pre-crisis highs and the average since 1997 of just over 8x. The increase has been driven by the prolonged low interest rate environment.

DR rise or fall 411.jpg

While GPs are facing competition for deals, LPs are being confronted with challenges to get capital committed. Over half of LPs in the Coller Capital survey said increased competition among investors creates a struggle for them to invest as much as they wish with their preferred GPs.

One such GP would be Thoma Bravo, which began fundraising its latest vehicle, Fund XII, in January with a $7.2 billion hard-cap, and is already oversubscribed.

“The problem of investing at scale with preferred GPs is acute for mid-sized LPs,” Coller partner Luca Salvato said. “The large investors writing large tickets are crowding out the mid-size LPs when competing for the preferred GPs.”

Despite concerns related to wider market volatility, most LPs are planning to commit to private equity next year in either similar or higher volumes.

Taiwanese pension Bureau of Labour Funds expressed interest in May in raising its allocation to alternatives in overseas markets from 4.6 percent to 8 percent, while South Korea’s National Pension Service upped its exposure to alternatives by about 17 percent and the Maryland State Retirement and Pension System increased its PE allocation by 1 percent to 11 percent.

DR steady as she goes 411