Growing demand for private equity exposure from pension funds and sovereign wealth funds is expected to go some way to plug the gap left by a drop-off in allocations from insurance and financial institutions, according to research from Morgan Stanley.
The report from Morgan Stanley entitled "Global Asset Managers: How Asset Managers Grow in a Low Return World" forecasts steady increase in pension fund allocations from 5.5% in 2010 to 6% by 2014, representing an additional $270bn of private equity allocations in that period.
The bank also predicted that sovereign wealth fund allocations would rise from 3.7% in 2010 to 4% by 2014, implying an additional $100bn of private equity allocations.
The report said that regulatory pressures such as Solvency II and Dodd-Frank would likely cause allocations to private equity from insurance and financial institutions to shrink.
The Solvency II rules limit insurance companies from investing in private equity funds while the proposed Volcker Rule under Dodd-Frank financial overhaul would also impose restrictions on banks’ relationships with hedge funds and private equity firms.
Niclas Ekestubbe, a partner at the Nordic secondary buyout investor Cubera Private Equity told Financial News earlier this month: “Previously large investors in funds, such as banks and insurers, are now far less prevalent, meaning that the remaining investors have more leverage.”
He added that that the remaining investors in private equity are either long-standing players with liquidity and ‘defined relationships’ or sovereign wealth funds that had built up experience and now felt more able to push for more generous fee and co-investment terms in agreements with investors
Abu Dhabi Investment Authority is reportedly looking to raise its allocations to private equity, the report noted.
Last week, US pension fund Teacher Retirement System of Texas placed one of the largest single bets on private equity ever by a public employee pension fund, committing $6bn to industry heavyweights Apollo Global Management and Kohlberg Kravis Roberts.
The Texas fund's senior managing director Steve LeBlanc said the deal allows the pension fund to "focus more on a partnership" with KKR and Apollo, who can make investment decisions for the Texas fund based on its overall portfolio and return targets.
Morgan Stanley report also cited pension fund Illinois Teachers’ Retirement System's plan to commit $900m to $1.4bn to private equity in 2012, increasing target allocations to 9.5% from 8% in 2011.
The report added that private equity funds that offer investors exposure to themes of growth, such as growing markets in Asia and growth capital, as well as inflation-hedging opportunities such as infrastructure, mezzanine and real estate were better placed to secure fundraisings. The report also said that funds with a distressed investment focus were well placed.
efinancialnews.com
The report from Morgan Stanley entitled "Global Asset Managers: How Asset Managers Grow in a Low Return World" forecasts steady increase in pension fund allocations from 5.5% in 2010 to 6% by 2014, representing an additional $270bn of private equity allocations in that period.
The bank also predicted that sovereign wealth fund allocations would rise from 3.7% in 2010 to 4% by 2014, implying an additional $100bn of private equity allocations.
The report said that regulatory pressures such as Solvency II and Dodd-Frank would likely cause allocations to private equity from insurance and financial institutions to shrink.
The Solvency II rules limit insurance companies from investing in private equity funds while the proposed Volcker Rule under Dodd-Frank financial overhaul would also impose restrictions on banks’ relationships with hedge funds and private equity firms.
Niclas Ekestubbe, a partner at the Nordic secondary buyout investor Cubera Private Equity told Financial News earlier this month: “Previously large investors in funds, such as banks and insurers, are now far less prevalent, meaning that the remaining investors have more leverage.”
He added that that the remaining investors in private equity are either long-standing players with liquidity and ‘defined relationships’ or sovereign wealth funds that had built up experience and now felt more able to push for more generous fee and co-investment terms in agreements with investors
Abu Dhabi Investment Authority is reportedly looking to raise its allocations to private equity, the report noted.
Last week, US pension fund Teacher Retirement System of Texas placed one of the largest single bets on private equity ever by a public employee pension fund, committing $6bn to industry heavyweights Apollo Global Management and Kohlberg Kravis Roberts.
The Texas fund's senior managing director Steve LeBlanc said the deal allows the pension fund to "focus more on a partnership" with KKR and Apollo, who can make investment decisions for the Texas fund based on its overall portfolio and return targets.
Morgan Stanley report also cited pension fund Illinois Teachers’ Retirement System's plan to commit $900m to $1.4bn to private equity in 2012, increasing target allocations to 9.5% from 8% in 2011.
The report added that private equity funds that offer investors exposure to themes of growth, such as growing markets in Asia and growth capital, as well as inflation-hedging opportunities such as infrastructure, mezzanine and real estate were better placed to secure fundraisings. The report also said that funds with a distressed investment focus were well placed.
efinancialnews.com
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