SWFs consider reducing PE allocations – survey

The survey found that SWFs and their asset managers see private equity as a less attractive choice due to increased levels of dry powder. This has resulted in higher competition, which is impacting prices as managers need to put money to work. Other reasons included market volatility and uncertainty in the external environmental. Nevertheless, exposure to private equity has increased over the last five years, from 3.2% of a sovereign's assets under management in 2013 to 6.4% in 2018.

Alex Millar, Invesco's head of EMEA sovereigns and UK institutional business, says: "Good opportunities are seen in infrastructure and in private credit, but respondents are seeing fewer attractive opportunities in private equity because of increased competition for assets and bidding up of prices. Over three fifths (61%) of respondents raised concerns that private equity is becoming overvalued."

A larger number of respondents said private equity distributions have outweighed capital calls. This comes as a result of high multiples prevailing at both exit and new entry.

Some SWFs have also highlighted that they are increasing their efforts to source assets directly. They tend to open offices "on the ground" recruiting local staff in both international financial centres and target markets.

SWFs are cited as keen on gaining more control over the sourcing and structuring of private equity assets, including control over leverage. They are also interested in the ongoing management of portfolio companies in a bid to generate additional value, such as margin expansion.

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