Over 40% of institutional investors said they would continue to allocate more than 10% of their portfolios to private equity, despite lower returns which had significantly affected a number of the investors that were surveyed.
Montana Capital Partners, which published its 11th Annual Investor Survey this week, said the finding showed that investors were maintaining their appetite for the asset class despite the “challenging market environment”.
Some 41% of institutional investors and 84% of family offices continue to allocate more than 10% of their portfolio to the asset class, compared to 39% and 81%, respectively, in 2022, and this is largely driven by continued outperformance relative to other asset classes, said Montana.
However, the number of investors expecting a decrease in their overall private equity allocation in the next 12 months also increased, albeit from a low starting point – 9% of investors vs. 3% in 2022. Montana said this indicated that the private equity fundraising environment will remain challenging in 2024.
The ‘Private Equity in the Spotlight – How Leading Investors Navigate the Slowdown’ report also found that “distributions” in private equity portfolios – in other words, returns – had visibly slowed down, with two-thirds of respondents receiving lower distributions in 2023 than expected – and a third even indicating that the impact on them was “significant”.
This development is expected to continue in 2024, with 44% of respondents anticipating lower distributions than expected, and Montana said the need for liquidity was increasing among investors, who were looking more closely at the secondaries market for secondary sales of private equity commitments.
Secondaries allocations are expected to increase, with 85% of respondents planning to maintain, increase, or introduce an allocation to secondaries. Eduard Lemle, CIO at Montana, said the slowdown of distributions presented a “very attractive” opportunity set for secondary buyers.
The report said that private equity performance has “remained broadly resilient, ” with 78% of investors seeing a positive or flat performance in 2023 to date. The survey found that mid-market buyouts and secondaries remained the top two strategies for investors and that software and technology, healthcare, and business services were the favoured sectors.
“Investors continue to prioritise investment strategies that have historically proven to be resilient in times of economic downturns and high-interest rates”, Marco Wulff, CEO at Montana, said. “The importance of secondaries will only grow as investors seek stability, performance, and early liquidity.”
More than 90 family offices and institutional investors worldwide were surveyed during August and September.
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