Investors seek new sweetspot

01 April 2008

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In marked contrast to the past few years, when many LPs struggled to access 'top-tier' mega-funds, attitudes are shifting in favour of funds in the lower- and mid-market. A recent survey of 130 global LPs conducted by placement agent Almeida Capital reveals that large buyout funds are now deemed less attractive (44%) than small or medium-sized funds* (both 77%).

"LPs have spent two years investing heavily in mega-funds, so looking elsewhere is a natural next step," says Almeida CEO Richard Sachar. The survey further reveals that nearly half of LPs are looking to build new relationships with GPs they haven't previously invested in. "This is probably a doubling of what the figure would have been a year ago," says Sachar. "LPs were extremely busy re-upping over the last 12 months so now many are looking to rebalance their portfolios. It marks a big change in the market."

The study further reveals that nearly half of those surveyed intend to allocate more than $250m in 2008, and nearly a quarter are planning to commit at least half a million dollars to the asset class. "Investment and allocation committees tend to base decisions on historical performance, which has been good, so this continued interest is not surprising. However if we see a bad year in 2008, I would be surprised to see continued momentum this time next year," Sachar says.

AND THE SURVEY SAYS ...

50% of LPs to maintain allocations; 42% to increase

Small and mid-sized buyouts most attractive (77%); large waning in popularity (44%)*

47% to invest at least $250m in 2008; 24% to invest at least $500m

50% of LPs intend to increase allocations to special situations; 49% to decrease for large buyouts

Source: Almeida Capital

*Small <$500m; Mid $500m-$5bn; Large >$5bn).