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PE allocations on the up

Commitments to private equity funds in Europe have almost doubled since 1999, reaching EURO26.7 billion, according to a global report on alternative investing from Goldman Sachs and Frank Russell. As well as Europe, the report covers North America, Australia and Japan. Worldwide private equity commitments of the surveyed institutions reached around $250 billion.

The report highlights that institutional investors are increasingly turning to alternative investments in an effort to boost excess returns for their investment portfolios.

In Europe, strategic allocations to private equity are rising at a steady pace. In 2001 investors allocated 3.7 per cent of their total assets to private equity. Respondents to the survey in the UK and continental Europe expect 2003 strategic allocation to increase to 4.2 per cent and 4.3 per cent.

The report reveals that leveraged buyout funds attracted the largest share of private equity commitments in all regions except Japan, where venture capital funds are favoured by the small investor base and where hedge funds are more popular than private equity.

Nigel O’Sullivan, managing director European Pension and Insurance Strategy Group at Goldman Sachs, cited greater acceptance and understanding of the asset class and good returns as a significant driver for growth. However, he added that the events of September 11 have caused investors to interpret their portfolios in different ways and it is difficult to predict what will happen in the long term.

Investing abroad continues to grow in popularity, with US respondents allocating 17 per cent of their private equity commitments to overseas investments, mainly in Western Europe, up from 14 per cent in 1999. And UK respondents are now investing increasing amounts in North America and moving away from the predominantly Western European orientation reported in 1999.

Hal Strong, managing director at Frank Russell Capital, said: “Allocations to private equity have grown in the US, but the pace of this growth is now slowing. However, we are seeing more meaningful increases in allocations particularly in the UK and we expect this trend to continue.”