A Look at the Private Equity Fund Manager Outlook

Every half of the year Preqin, the private equity and venture capital research group, does a “Private Equity Fund Manager Outlook”.  They’re out with their second half of 2017 picture.  Here’s a look at what private equity fund mangers think on deal flow and competition, investor appetite, and outlook and future plans.

Deal Flow and Competition

First off, deal flow and competition.  Would you guess that private equity managers expect to deploy more or less capital in the second half of 2017?

On the one hand, the economy could be peaking, and if that’s the case, now is probably a bad time to be deploying more capital.  On the other hand, if the economy is going to continue chugging along at its current pace, then not deploying capital now will put the lagging managers at a disadvantage.  Take your guess, because the following graphic has the answer, at least according to Prequin’s private equity fund manger results.

Interestingly, about a third of respondents, 36 percent, said they plan to deploy significantly more capital in the coming 12 months.  Another 26 percent indicated they planned to deploy slightly more capital.  These two together add to 62 percent.  Healthy by most any measure.  Perhaps surprisingly, only 5 percent of respondents indicated they plan to deploy slightly less capital and only 1 percent said they plan to deploy significantly less capital.  Optimism is strong in the private equity universe right now.

Source: Preqin

Shifting to competition – would you guess competition in the private equity world is going up or down?  Interestingly, as indicated in the following graphic, 50 percent of respondents anticipate more competition, 48 percent expect no change in competition, and only 2 percent expect less competition.  Again, optimism is not lacking in supply in the private equity management world.

Source: Preqin

Investor Appetite

Next up, what would you guess private equity managers think institutional investor appetite will grow or decline by in the coming 12 months?  Are big foundations, banks, and investors thinking private equity is becoming a more or less attractive asset class?  Here’s the result of Preqin’s survey.

Perhaps this result is completely unsurprising given that the survey respondents have a vested interest in raising money. Thirteen percent of respondents said they think institutional investor appetite will significantly increase in the coming 12 months and another 46 percent of respondents think appetite will slightly increase, for an overall optimistic view of 59 percent.

Probably the most surprising result is that 9 percent of respondents said they think appetite will slightly decline in the coming 12 months and another 2 percent said they think appetite will decrease significantly, for an overall non-optimistic view of 11 percent.

Source: Preqin

Outlook and Future Plans

Lastly, what do fund managers think about their targeted returns in the coming months?

Here’s their response.  Overall, these results are completely unsurprising.  A full 79 percent of respondents said they have no plans to change their returns.  Only 12 percent of respondents said they plan to increase their return targets and only 9 percent said they plan to reduce their target returns.

Source: Preqin

Conclusion

Overall, in an interesting review of private equity fund mangers’ views of the second half of 2017 and beyond, private equity fund mangers appear generally optimistic, with fund managers anticipating more capital to be deployed, more competition, and a growing appetite for private equity managers among institutional investors.