Adviser to big LPs ups view on venture capital, distressed debt funds

  • TorreyCove gauges investment prospects for 2014-2015
  • Distressed debt funds may benefit from higher interest rates
  • Venture funds provide good opportunity with ‘top quality managers’

Aimed at providing commitment recommendations up until the middle of 2015,  TorreyCove assigned its highest rating—moderate overweight—to three out of seven fund types; smaller buyout funds of $500 million to $5 billion, distressed debt and venture capital funds.

Measured against its year-ago ratings, TorreyCove kept its moderate overweight view on small buyout funds, while upgrading its neutral view on venture capital and distressed debt.

“Fed pullback from quantitative easing indicates higher future interest rates and better distressed investing …probably three to five years out,” TorreyCove said.

On the prospects for venture capital funds, TorreyCove said the asset class could benefit from active exit markets in 2014, a steady deployment of capital and more aggressive pricing. Venture capital funds offer a “good opportunity for investors who can access top quality managers,” TorreyCove said.

The rating on European large buyout funds was raised to neutral from moderate underweight.  While the euro and sovereign debt woes have stabilized and the economy is improving modestly, the EU faces poor growth prospects and credit availability is not broadly-based.

TorreyCove lifted its view on mezzanine funds to neutral from moderate underweight, while cutting its rating on secondaries to moderate underweight from neutral.

All told, TorreyCove divided private equity investing into seven categories, and assigned one of three possible ratings; moderate overweight, neutral and moderate underweight.

TorreyCove’s client list includes the Ohio Police & Fire pension fund, the San Francisco Pension System, the Oregon Investment Council and the Illinois Teachers Retirement System.