Mega buyouts out in the cold

Private equity investors will continue to shun mega buyout funds in favour of special situations and small and medium buyouts according to the latest LP allocation survey conducted by Almeida Capital.

The survey interviewed over 150 active LPs, and reveals that less than 20% of institutional investors view large buyouts as an attractive investment opportunity for 2009.

“This year LPs are more likely to throw rocks at mega funds rather than commit capital to them. The positive side to this is that LPs are looking elsewhere harder than ever for attractive opportunities,” said Richard Sachar, Almeida managing director.

LPs believe the best investment opportunity can be found in special situation funds, which rank as the most attractive opportunity for 2009, compared to the third most attractive last year. There has also been a surge of interest in secondaries and mezzanine. The number of investors rating secondary funds as attractive has increased by 18%.

European LPs are most positive about small buyout funds and secondaries, North American investors are interested in secondary fund investments and are most positive about mezzanine funds, and LPs in Asia and MENA are most pessimistic about virtually all private equity categories.

In terms of geographic preferences for 2009, almost all regions are deemed less attractive than last year, but Western Europe and America received a vote confidence from three quarters of LPs which believe these areas will generate the most attractive returns.

Emerging markets are still attracting strong interest, with 57% to 59% of LPs rating Central & Eastern Europe, India and China highly.

Despite the fact that overall allocations for private equity have fallen, over three quarters of the 150 active LPs interviewed are planning to invest the same or more this year compared to 2008, with 15 institutions allocating US$1bn each for private equity investments in 2009. Seventy eight percent are claiming their allocations will remain the same.