Investors Upping PE, Secondaries Exposure — Evening Brief – 12.03.24
Despite ongoing tensions in global politics and economies, new research shows that more investors are allocating larger portions of their overall portfolios to private equity.
Approximately 30% of institutional investors and over 76% of family offices now allocate more than 15% of their portfolios to the asset class, up seven and four percentage points, respectively, from 2023, a survey from Swiss-based private equity investor Montana Capital Partners showed.
Investors are upping their allocations to secondaries as well, with 13% of institutional investors and 12% of family offices now committing more than 25% of their private equity portfolios to the asset class, an increase from 8% and 10% respectively in 2023.
Approximately 70% of investors viewed secondaries as a strategic preference amid prevailing market conditions, according to the 12th annual MCP Investor Survey.
“Private equity, in particular secondaries, remain popular with investors who express a very positive view of the resilience and future performance of the asset class,” said MCP CEO and managing partner Marco Wulff. “Many investors are positioning their portfolios for liquidity, which should create long-lasting tailwinds for investments in secondaries over the coming months and years.”
MCP indicated that private equity investors appear optimistic regarding the future performance of the asset class.
Although over 50% of respondents anticipated a decline in multiples for 2023, currently three out of four investors assert that private equity multiples will either stabilize at existing levels or increase, likely bolstered by diminishing recession fears and lower interest rates.
More than 33% of investors prefer investing in generalist secondaries funds according to the survey, enabling them to leverage the advantages of both GP-led and LP-led transactions within the same fund. In contrast, only one in five respondents prefer LP or GP-led specialist funds, while the remaining investors exhibit no distinct preference.
At the same time, MCP also stated that the specialization of investment teams around either transaction type was a key priority when selecting secondaries firms.
Investors continue to prioritize software and technology, healthcare, and business services in terms of sectors, with 68%, 67%, and 62% of investors assigning them the most appealing risk/reward profiles, respectively, compared to 68%, 64%, and 45% in 2023.
Financial services are also gaining momentum, and are now favored by 25% of investors, compared to 18% in 2023. When it comes to AI, more than one in four investors expect portfolio companies to reap the greatest benefits, while nearly three out of 10 feel it is still too early to tell which aspect will experience the strongest benefit.