LPs shun mega-funds

Large buyout funds are out of favour with limited partners (LPs) says a report by placement agent Almeida Capital.

The coming year will see LPs increase allocations to small and mid-market funds, special situations and growth/capital funds, whilst they will decrease allocations to large buyout funds as they seek to readdress the imbalance in their portfolio of over-allocation to the mega-funds following the credit crunch.

The Limited Partner Allocation to Private Equity 2008, which was carried out through a series of interviews and questionnaires in Q4 2007, found that 77% of LPs saw small and medium buyout funds as attractive, while only 44% regarded large buyout funds as attractive in 2008.

Emerging markets also figured strongly in LPs thinking. A total of 38% of surveyed LPs intend to commit more capital to India, with 36% heading for Chine, 35% for Asian countries other than India, Chins and Japan, and 37% for Central and Eastern Europe.

Richard Sachar, managing director of Almeida, said: “Overall, LPs remain positive about private equity, with the vast majority of those currently invested in the asset class saying that they plan to invest at least US$100m in private equity this year, despite the turmoil in the credit market. However, institutional investors are clearly seeking to add alternatives to their core areas of large buyouts in North America and Western Europe, where they anticipate returns to drop.”