UK institutional investors are set to increase their allocation in private equity over the next two to five years according to a survey carried out by the Centre for Management Buyout Research (CMBOR) and sponsored by Swiss-based fund-of-funds manager Adveq.
The results, which are taken from answers provided by 239 institutions, show that 41% of UK institutions currently invest in private equity, and of these 28% invest less than 2% of total assets under management, 7% invest between 2% and 5%, 3% invest between 5% and 10%, and just 3% invest more than 10%. According to CMBOR though, over the next few years, the number of investors planning to invest between 2% and 5% and between 5% and 10% is set to increase. However, the actual number of UK institutions investing in private equity will fall in the next two to five years.
Over the same period, direct fund investment is set to decline from 52% to 44%, while investment in fund-of-funds is to increase from 31% to 38%. In a maturing market where funds are now being capped and LPs turned away, this development is perhaps not surprising as one of the main attractions of fund-of-funds is their ability to access certain markets, particularly the US.
Most UK investors put their money into the UK, with 54% concentrating their allocation on the British market. The US and Western Europe account for a further 20% each, while Asia makes up 2%.
In more bad news for venture capitalists, the LPs surveyed ranked European seed and start-up investment as the second least important asset class, narrowly beating Asian seed and start-up. Expansion and buyouts are the most important.
The report also found that UK investors expect, on average, a 12.8% return on their investments in private equity, and 65% believe that this expectation is being met. Perhaps worryingly, 23% believe actual returns have fallen below their estimates, while only 13% thought they had been exceeded.