Institutional investors in Germany are highly satisfied with their involvement in private equity, have recently expanded their investments in the sector, and are planning to increase their commitments in the future. These are results of a survey conducted by the German Private Equity and Venture Capital Association (BVK) among German institutional investors and family offices. 45 institutions participated in the survey and, among other things, provided insight into the scope and the reasons for their involvement in theasset class, as well as into the investment strategies pursued.
Collectively, the investors surveyed manage more than € 1,200 billion in total investment capital. The majority of those who participated in the survey are insurance companies and pension fund institutions. In addition, family offices, private equity fund of funds, banks, foundations and enterprises also participated. “Nine out of ten investors cited the expected return opportunities and the diversification of their portfolios as the primary motivations for investing,” said Peter Hielscher, BVK board member and Head of Alternative Investments at Talanx Asset Management.
More and more institutional investors rely on private equity. Nearly 70 percent of the respondents reported on recent increases in private equity allocation in their portfolio. Only 13 per cent of the respondents saw a decrease in their private equity allocation since 2013. “Institutional investors are looking for attractive, high-yield investments, not least because of the current period of lowinterest rates worldwide. At the same time, private equity has increasingly become the focus of attention,” commented Ulrike Hinrichs, Managing Director of the Board of Management at BVK, regarding development in recent years.
The returns generated seem to confirm this development, as investor satisfaction with their private equity investments is extremely high. All survey participants appear to be very satisfied or satisfied with the performance of their private equity portfolio. “None of the investors expressed dissatisfaction and two-thirds even expressed that they were very satisfied. This is a very gratifying assessment,” concluded Hinrichs.
This is also reflected in investors’ further plans. More than half of investors (55 percent) want to further expand their private equity allocation in the next one to two years, while an additional 40 of investors want to at least maintain their current level. “It must be assumed that private equity will continue to gain in popularity in the coming years,” stated Hielscher, looking ahead.
Further results of the survey:
• The investors surveyed have a wealth of many years of experience in private equity investments. On average, they have been involved in this asset class for 15 years and in venture capital approximately 11 years.
• Almost half of the respondents have currently invested less than 3 percent of their assets in private equity. There are significant differences in the private equity allocation within the investment portfolios. Thus in the case of family offices, foundations or fund of funds, for example, the percentage of private equity is relatively high and regularly exceeds the 5% threshold. In the case of insurance companies and pension fund institutions, this percentage is significantly lower.
• The activities of almost all respondents takes the form of investments in direct private equity funds. More than half of respondents are involved in private equity fund of funds, and a good third is holding direct corporate investments, for example, in the course of co-investments with their target funds.
• Buyouts in particular are the focus. Ninety percent are involved in the small and medium buyout sector, while three-quarters are invested in large buyouts. At least 71 percent of respondents have investments in the venture capital or growth segment. Almost two-thirds are involved in secondary funds.
• Nine out of ten investors cited the demonstrable quality and experience of fund management, as well as a comprehensible investment strategy, when asked about the key criteria they consider when selecting their private equity target funds. Nearly 60 per cent cited appropriate remuneration structures. Only a quarter mentioned a positive track record in the past.