LPs to spurn large buyouts in 2009

26 January 2009

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Large buyout funds ($5bn-plus) have continued to lose their sheen with limited partners, according to a recent study. Just a fifth of 150 global LPs deem the category attractive, down 25% from the 2008 survey (which itself was down on the previous year's figures).

The drop is unsurprising given recent events, and sees other fund types leapfrog mega-funds to the top of LPs' wish list. Special situations and small buyout funds ($500m-5bn) top the list in Europe, with 75% of LPs deeming the space attractive. In fact, half of respondents will increase their allocation to special situation funds, and 39% will up their exposure to small buyouts this year, with the majority (58%) intending to decrease their commitments to the large buyout space.

The study, conducted by placement and advisory firm Almeida Capital, generated some surprisingly optimistic findings. For example, despite anecdotal evidence of a retrenchment from the asset class, the majority (54%) of respondents will maintain their allocation to private equity. What's more, a slightly higher proportion will increase their allocations (24%) than decrease (22%). This rose-hued picture may be because only 7% claim to be "majorly affected" by the credit crunch, with the majority (53%) claiming no effect whatsoever.

FUND TYPE: Special situations leapt to most attractive destination for LPs, up from third place last year. A staggering 58% of respondents will decrease their allocations to large buyouts. Half will increase their allocations to special situations.

GEOGRAPHY: Western Europe is the destination of choice, with 77% of respondents deeming it attractive. North America was a close second, with 73%. Central & Eastern Europe was a distant, albeit impressive, third place with 59% of LPs attracted to the region. Japan was the biggest loser, with 31% attracted to the country, squandering a fifth of its fans from last year.

ALLOCATIONS: An optimistic 78% of LPs will maintain (54%) or even increase (24%) their allocations this year compared to last.

RELATIONSHIPS: 40% of LPs will seek out new GP relationships this year, down marginally from 44% last year.