Montana Capital Partners (“mcp”) has published its 12th Annual Investor Survey, which explores investment preferences of global private equity investors with results underpinning the ongoing growth and attractiveness of the asset class.
Despite rising geopolitical tensions and amidst a resilient macro environment, private equity allocations remain high and have increased further: 30% of institutional investors and 76% of family offices have reported allocating more than 15% of their portfolio to the asset class, a rise of seven and four percentage points respectively, compared to 2023.
Investors also continued to increase their allocation to secondaries with 13% and 12% of institutional investors and family offices now dedicating more than 25% of their private equity portfolio to secondaries, compared to 8% and 10% respectively, in 2023. Furthermore, 7 out of 10 investors (69%) identified secondaries as a strategic preference in the current market environment.
“Private equity, in particular secondaries, remain popular with investors who express a very positive view of the resilience and future performance of the asset class”, Marco Wulff, managing partner and CEO at mcp commented. “Many investors are positioning their portfolios for liquidity, which should create long-lasting tailwinds for investments in secondaries over the coming months and years.”
Indeed, private equity investors seem to be optimistic about the performance of the asset class going forward. While more than half of respondents had expected multiples to decrease in 2023, this year 3 out of 4 investors (74%) believe private equity multiples will remain at current levels or trend higher, potentially supported by easing recession fears and supportive interest rate movements.
In terms of fund structures, more than one-third (35%) of investors prefer investing in generalist secondaries funds, allowing them to capture the benefits of both GP-led and LP-led transactions within the same fund, while only 1 in 5 (19%) respondents prefer specialist funds (LP- or GP-led) and the remaining investors not showing a clear preference. At the same time, specialisation of investment teams around either transaction type was identified as key priority when selecting secondaries firms.
Eduard Lemle, managing partner and CIO at mcp, added: “Allocations to secondaries are increasing as investors recognise the strategy’s appeal in the current market environment. We at Montana Capital Partners follow a balanced approach of investing in both GP-led and LP-led transactions in the mid-market segment, which enables us to select attractive opportunities regardless of deal type — a strategy that also appears to resonate well with respondents in our survey.”
In terms of sectors, investors continue to favour software and technology, healthcare, and business services with 68%, 67% and 62% of investors assigning it the most attractive risk/reward profiles, compared to 68%, 64% and 45%, respectively, in 2023. Notably, financial services are gaining momentum and are now favoured by 25% of investors, compared to 18% in 2023.
When it comes to artificial intelligence, more than 1 in 4 investors (26%) expect portfolio companies to reap the greatest benefits, while nearly 3 out of 10 (28%) feel it is still too early to tell which aspect will experience the strongest benefit.
When asked about their main concern regarding market activity over the next 12 months, geopolitical tensions were identified by 41% (2023: 15%), followed by inflated private equity valuations (25% vs. 21% in 2023) and an economic recession (22% vs. 32% in 2023).
