Where are the private equity investors going? A firm that tracks big investors in PE funds says that more than one in three has decided to give up on private equity as an asset class for either a short while or for good.
That's not good news for funds going out looking for cash in the next year. Loans from banks may be in easy supply, but actual equity checks from investors are going to be harder to come by. At some point, that's going to slow deal flow.
According to industry tracking company Preqin, 1,500 of the 4,300 private equity investors it follows are not putting more money into the asset class right now. Half may come back, but half may not.
Of the 1,500 missing in action investors, 500 or so say they are just backing off for at least six months. They may come back into the market. Another 200 or so are unable to commit more because they are overallocated to private equity already, meaning they have more committed to the asset class than their benchmarks say they should. That means they have to lay off until their investments come back into balance. That can happen when assets ebb and flow with markets, but it takes time.
The biggest number, the remaining 800, say they are gone for good. Some were just dabblers, who never made more than one or two investments.
"Just 5 per cent of the LPs known to no longer invest in private equity chose to stop investing following a change in strategy in the past couple of years, showing that few were motivated by a lack of confidence in the asset class prompted by the financial crisis," Preqin said in its report.
Still, 800 investors who are now not taking fundraising calls represents a big chunk of the fundraising market that's gone.