Survey Shows: LPs Increasing PE

Listen up, general partners of private equity firms: It’s easier to raise a fund these days. While few if any will profess that raising a fund is easy, a survey released earlier this month shows U.S. institutional investors overwhelmingly want to increase their allocations to alternative assets, including private equity.

The survey of more than 1,000 public and private pensions, endowments and foundations was conducted by Greenwich, Conn.-based research firm Greenwich Associates in its 2005 U.S. Asset Allocation research.

The survey found that private equity allocations have steadily increased over the past two years. Institutional investors’ average allocation to private equity increased from 3% in 2003 to 3.4% in 2004.

And increases in private equity among institutional investors will only continue to increase, according to the firm.

Its survey found that 30% of U.S. institutional investors planned to make “sizeable additions” to private equity. More than 33% of limited partners polled expressed interest in increasing hedge fund activity, as well.

Even though interest in alternative assets is increasing, LPs are planning on lower rates of returns across the board. The expectations of private equity rates of returns dropped slightly, from 11.3% to 11.1percent.

Other alternative asset classes, such as hedge funds, show a larger decline in LP expectations.

Also, between 12% and 13% of U.S. LPs expect to cut their investments in domestic equities over the next three years, according to the Greenwich survey.