Just over 40 percent of smaller investors plan to increase their private equity allocation in 2021, according to a survey from law firm Seward & Kissel.
About the same amount said they planned no change in their private equity allocations, while less than 10 percent said they would decrease their private equity allocations.
Other strategies investors expected to increase allocations to this year were private credit and venture capital. These three illiquid strategies made up three of the top four for which investors expected increased allocations.
All told, 42 percent of respondents planned to increase at least one alternatives strategy and 54 percent planned to stay the same, while only 4 percent planned to decrease their allocation to at least one.
The survey tracks a wide variety of institutional and high-net-worth investors, including funds-of-funds, endowments, foundations and non-profits, high-net individuals or family offices and investment consultants. The firm did not disclose how many investors took part in the survey, but a spokeswoman said it was statistically significant.
Fund-of-funds and investment consultants were the investor groups most interested in increasing their private equity allocations. High-net-worth individuals and family offices and funds-of-funds were most interested in venture capital. Endowments, foundations and non-profits, high net-worth individuals and family offices and investment consultants were most interested in private debt.
The investors in the survey skew smaller as far as the size of their allocations, with 88 percent having less than $100 million in their allocation to alternatives and two-thirds less than $51 million. Of the respondents, 36 percent had allocations between $1 million and $15 million, 16 percent between $16 million and $25 million, another 16 percent between $26 million and $50 million and 20 percent between $51 million and $100 million.
Funds-of-funds made up the largest amount of survey respondents, at 29.4 percent. One-third of them also reported having an alternatives allocation of between $51 million and $100 million.
One of the big issues that has arisen during the coronavirus pandemic and the ensuing shift to remote work is emerging managers’ ability to raise capital, due to their inability to make pitches in person. Despite this, a whopping 80 percent of respondents said their organizations invested in alternative investment managers founded less than two years ago.
Interestingly, when looking at each investor group, funds-of-funds were once again the top group for emerging manager investments. All respondents reported investing with emerging managers, with pension systems at the lower end of the spectrum.
One way around this issue with emerging managers that Buyouts has covered is managers with teams that have a solid track record, be they former partners at well-known firms, or independent sponsors transitioning to becoming firms.
Action Item: download the Seward & Kissel survey here.