1. finance
2. investing
3. venture capital

PRIVATE EQUITY
For e cas t & De s k B o o k f o r 2015
On an ongoing basis, Probitas Partners offers research and investment
tools for the alternative investment market to aid its institutional
investor and general partner clients. Probitas Partners compiles data
from various trade and other sources and then vets and enhances that
data via its team’s broad knowledge of the market.
¯ ˘ ¯
probity
n. [from Latin probitas: good, proper, honest.] adherence
to the highest principles, ideals and character.
Probitas Partners is pleased to present its Private Equity Forecast and
Desk Book for 2015. The purpose of this paper is to offer our forward
view of likely trends for 2015 and beyond based on our review of 2014
and our ongoing dialog with (and surveys of) the global institutional
investor marketplace. The paper starts with our forecast for this year,
then presents a summary review of the dominant trends that shaped
2014 and the details behind those trends.
We encourage you to obtain copies of our research reports, surveys, and
desk books from our firm’s library at www.probitaspartners.com.
Contents
Private Equity Outlook............................................................... 2
Private Equity Fundraising........................................................ 6
Deal Volume and Capital Overhang........................................ 9
The Buyout Market: Investor Focus and Concerns............. 12
U.S. Venture Capital................................................................. 17
Distressed Private Equity......................................................... 20
Asia.............................................................................................. 24
Europe......................................................................................... 27
Emerging Markets.................................................................... 30
Private Debt Markets............................................................... 32
Energy and Private Equity....................................................... 34
The Secondary Market............................................................. 36
Real Assets................................................................................. 38
© 2015 Probitas Partners
1
Private Equity Forecast & Desk Book for 2015
Private Equity Outlook
Increasing Focus on Risk in the Buyout Market
Relatively high purchase price multiples, increasing leverage, the return of
covenant-lite debt and increasing dry powder have a number of limited partners
that invest in developed market buyout funds worried that we are reaching a new
market peak with more downside risk than upside opportunity. But most investors
are not worried about a market meltdown similar to 2008; rather, most expect a
more normal market down-cycle.
Increasingly, these investors are more focused during due diligence on managers
with experience across cycles and who maintain pricing discipline in expensive
markets, preserving dry powder for a better pricing environment.
A few investors are beginning to slow their commitment pace to buyout funds to
limit their exposure even as maintaining allocation targets becomes increasingly
difficult as private equity distributions remain high.
Energy Sector: Risks and Opportunities
The dramatic decline in oil prices since the summer of 2014 has already shaken a
number of funds with significant exposure to the oil industry, especially those with
portfolio companies that are highly leveraged.
A number of fund managers have rushed funds to market targeting distressed
energy investments both in equity and debt plays, seeking to raise money quickly
at what they perceive to be the bottom of an oil pricing cycle.
The key question for both stressed legacy portfolio companies and new distressed
opportunities is “At what price level will oil prices stabilize and how long will it
take to reach that point?” — a question for which there is no consensus.
A number of investors are predicting that the sharp drop in oil prices will have
significant negative impact on the renewable energy market. However, the
renewable sector is heavily focused on electricity generation, and oil is a minor
factor in that sector.
Private Equity Forecast & Desk Book for 2015
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© 2015 Probitas Partners
“Limited partners
... are worried
that we are
reaching a new
market peak with
more downside
risk than upside
opportunity”
Rebound in Venture Capital Interest
Interest in venture capital rebounded in 2014 after a low the previous year, and
the market is continuing to shift towards a barbell approach quite different from
the late 1990s.
Growth Capital: Many of the largest funds have shifted to a growth
capital/late stage focus taking advantage of a larger number of successful
companies that seek to delay going public for various reasons.
Seed Stage and Angel Investing: Capital efficiency, in part driven by
cloud outsourcing, is making seed stage and angel investing a more viable
option for launching internet-focused companies with minimal capital
needs, though seed stage vehicles are often too small to attract institutional
investor interest.
Early stage funds are still of interest to investors, but the dynamics of the market
make them difficult to scale (a constraint not binding growth capital funds), while
capital efficiency impacts competition on initially smaller transactions.
“SEC reviews ...
[have] revealed
a number of
problems in fee
and expense
calculations”
United States: Regulation and Fees
In the United States the first round of SEC reviews of private equity firms has
revealed a number of problems in fee and expense calculations, and more are
likely to follow.
These revelations are likely to trigger increased investor focus on these issues
when negotiating limited partnership agreements as well as an increased focus
by limited partners on the verification of fee, expense and carry calculations.
This issue also seems to be increasing the distrust of fund managers by
institutional investors.
© 2015 Probitas Partners
3
Private Equity Forecast & Desk Book for 2015
Europe: AIFMD and Access
The intent of the Alternative Investment Fund Manager’s Directive (“AIFMD”)
was to introduce a common Eurozone regulatory environment meant to protect
institutional investors. However, the law of unintended consequences seems to
have taken its place.
Fragmentation: The implementation of the directive by local regulatory
regimes has created a hodgepodge of rules that vary significantly and are a
fund manager’s nightmare and a lawyer’s dream.
European Passport: The differences in the country-by-country regulations
are making it more difficult to institute a common passport across Europe.
It was originally contemplated that the passport allowing marketing across
the Eurozone for EU headquartered fund managers would become available
by 2016, but there is increasing feeling that this target will not be reached.
Fortress Europe: These regulatory differences are much more difficult
for fund managers outside of Europe to navigate, especially if — as is now
being discussed to some degrees — the common passport will not be made
available to foreign fund managers. There is already an increasing trend,
especially among small middle-market and growth capital managers outside
of Europe, to avoid Europe for fundraising altogether, limiting attractive
choices in these sectors for European investors.
Switzerland: AIFMD does not apply to Switzerland, as it is not a member
of the EU and was perceived to be a bit of a safe haven. However, it has
recently adopted a registration requirement for foreign managers raising
money from non-FINMA regulated Swiss investors that creates one more
roadblock for smaller fund managers.
Private Equity Forecast & Desk Book for 2015
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© 2015 Probitas Partners
Private Debt or Illiquid Credit
Private debt continues to gain in importance as a dedicated sector of alternatives,
especially as banks continue to struggle for portfolio and regulatory reasons,
expanding beyond mezzanine debt funds long considered part of private equity.
The rise of direct lending funds as a partial replacement for bank lending is
directly related to these issues.
The sector is also expanding with the addition of a number of newer strategies
such as unitranche, structured capital, and royalties. Certain investors are also
looking at sectors of the distressed private equity market — such as opportunistic
credit and distressed debt investing — as private debt as opposed to pure private
equity plays.
An open question is “Where will these investments reside in investors’ portfolios?”
as there is not a clear consensus — nor is there complete consensus on what
sub-sectors belong in private debt or illiquid credit.
Turbulence and Opportunity in Emerging Markets
“Interest in
emerging markets
is highly localized
by geography”
Interest in emerging markets is highly localized by geography, with political and
general economic factors often taking precedence over factors specific to private
equity. Over the last year, interest in Russian private equity provides an example
of negative interest on investor demand, while Narendra Modi’s election to be
Prime Minister of India provides an example of a positive impact. In addition,
tough times in one geography can benefit another; weakness in the Brazilian
economy (as well as a past heavy concentration by investors on Brazilian funds)
has led to an increased interest by international investors on the Andes region in
order to diversify their Latin American exposure.
The largest emerging market is China. However, the size of its economy, the broad
scope of its private equity market and the availability of experienced managers
begs the question “When will China be considered emerged?”
© 2015 Probitas Partners
5
Private Equity Forecast & Desk Book for 2015
Private Equity Fundraising
Fundraising
Private equity fundraising increased slightly during 2014, driven by increases in
North America that offset declines in Europe and a flat market in Asia. Established
private equity investors’ portfolio allocations continued to free up as exit activity
surged earlier in the year and significant cash was returned to investors.
North America
Private equity fundraising increased by 19% over 2013’s total (Chart I), driven
largely by commitments to buyout funds.
Venture capital fundraising surged by nearly 70% during the year, returning to its
2007 level, though still considerably below its 2000 peak.
Europe
European-focused fundraising decreased by 25% during the year, as concerns
about the European economy revived and there were fewer large Pan-European
funds in market (Chart II).
Middle-market country-focused funds remain a mainstay of the European market
in terms of the number of funds. Investors were focused on the stronger economies
of Northern Europe, with the Nordic countries, the UK, and Germany leading
investor interest.
Not included in the private equity totals in this chart is the full range of private
debt funds, which had fundraising success in Europe in 2014.
Asia
Asian fundraising remained fairly flat during the year and is still noticeably
below 2011’s market peak, driven by continued concerns about the slowing of the
Chinese economy (Chart III).
Latin America
Latin American fundraising surged, nearly reaching 2011’s peak fundraising year
(Chart IV).
However, fundraising was highly concentrated, with three funds raised by Advent,
Gávea, and Patria accounting for 62% of 2014’s total.
Private Equity Forecast & Desk Book for 2015
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© 2015 Probitas Partners
Other Emerging Markets
Fundraising for other emerging markets is not detailed in a chart; these niche
markets are fairly volatile and long-term trend lines are less meaningful. It was
notable, however, that in 2014, $4 billion was raised targeting Sub-Saharan
Africa, by far the largest annual total raised for that geography.
Chart I Commitments to U.S. Private Equity Partnerships by Sector
350
297
300
236
161
150
91
30
32
1995
1996
100
50
183
123
107
100
204
152
91
59
50
87
80
2010
200
243
237
2009
USD in billions
250
48
Buyouts/Corporate Finance
Secondaries/Other
Venture Capital
2014
2013
2012
2011
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
Mezzanine
Source: Private Equity Analyst
Note: Does not include fund-of-funds, infrastructure funds
Chart II Commitments to European Private Equity Partnerships by Sector
80
70.2
54.9
EUR in billions
60
56.9
61.8
48.9
40
32.5
24.3
18.6
20
13.8
16.3
2009
2010
37.5
35.3
0
2003
2004
2005
2006
Buyouts/Growth
2007
2008
Special Situation
2011
Venture Capital
2012
2013
2014
Mezzanine
Source: Probitas Partners
© 2015 Probitas Partners
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Private Equity Forecast & Desk Book for 2015
Chart III Commitments to Asian Private Equity Partnerships
80
72.9
70
62.1
55.4
50.2
50
50.9 51.3
41.4
41.2
40
26.6
30
5.6
5.9
1997
1998
10
7.4
1996
20
25.5
13.4
13.2
6.5
7.3
2003
16.2 17.9
2002
USD in billions
60
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2001
2000
1999
0
Source: Asian Venture Capital Journal; 2014 number is preliminary
Chart IV Commitments for Latin American Private Equity Partnerships
9
8.4
7.8
8
7
5.6
5
4.4
4
3.4
4.2
2.7
2.6
3
1.8
1.3
1
0.6
0.4
0.4
2003
1.5
2.7
2.2
2002
2
4.5
3.7
2001
USD in billions
6
0.7
Source: EMPEA
Private Equity Forecast & Desk Book for 2015
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© 2015 Probitas Partners
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2000
1999
1998
1997
1996
0
Deal Volume and Capital Overhang
“Private equity
activity as a
percentage of
all mergers and
acquisitions
activity edged
to a new
all-time high”
Funds are raised to be profitably deployed during their investment periods. At a
high level, deal volume and capital overhang statistics offer some insight into that
process and where we are in the cycle.
Global Deal Making
Global private equity deal volumes increased significantly in 2014, driven by a
very small number of mega deals, though they are still far below the peak year
of 2006 (Chart V).
Private equity activity as a percentage of all mergers and acquisitions activity
edged to a new all-time high in 2014 of 21.9%. In the past, levels this high have
usually indicated that private equity sponsors have been more likely to outbid
strategic acquirers, often a danger signal on deal pricing.
2014’s dollar deal volume was driven by a few very large transactions; the number
of transactions only increased by 6% while dollar volume increased over 40%.
Chart V Global Private Equity Deal Volume and Percentage of Mergers and
Acquisitions Activity
900
788
800
22
784
20
18
16
542
600
500
400
354
326
300
340
12
386
10
8
252
252
6
144
200
14
Percentage (%)
USD in billions
700
4
2
100
0
0
2005
2006
2007
2008
Deal Volume
2009
2010
2011
2012
2013
2014
% of Mergers and Acquisitions
Source: Thomas Reuters
© 2015 Probitas Partners
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Private Equity Forecast & Desk Book for 2015
Capital Overhang or “Dry Powder”
“Dry powder ...
increase[d] in
2014, exceeding
the peak level
reached at the
end of 2008”
Dry powder or capital available for deployment continued to increase in 2014,
exceeding the peak level reached at the end of 2008. This follows a decline in dry
powder from 2010 through 2012, as capital raised during the market peak years
was invested slowly coming out of the Financial Crisis (Chart VI).
Buyout funds drive the capital overhang numbers; buyouts remain the largest
sector of the global private equity market, and buyout dry powder increased 16%
during the year.
North America is the largest private equity market and has the largest capital
overhang (Chart VII), but these totals include a number of U.S. headquartered
mega buyout funds that invest globally.
Chart VI Private Equity Dry Powder by Investment Strategy
1000
877
900
757
800
USD in billions
700
815
801
746
734
2010
2011
783
697
619
600
439
500
352
334
2003
2004
400
300
200
100
0
Buyout
2005
2006
2007
Venture Capital
2008
2009
Distressed Private Equity
Mezzanine
2012
Other
Source: PREQIN
Private Equity Forecast & Desk Book for 2015
10
© 2015 Probitas Partners
2013
Growth
2014
Chart VII Private Equity Dry Powder by Geography, December 2014
56%
North America
Europe
6%
Asia
24%
14%
Rest of the World
Source: PREQIN
© 2015 Probitas Partners
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Private Equity Forecast & Desk Book for 2015
The Buyout Market: Investor Focus and Concerns
Buyouts are the largest segment of the North American and European private equity
markets. Consequently, the key factors impacting buyout investments significantly
impact the performance of most institutional private equity portfolios. Those
factors include:
Purchase Price Multiples
Purchase price multiples at the large end of the market in both the United States
and Europe increased sharply in 2014 after moderating in 2013 (Charts VIII and IX).
The pattern for middle-market buyouts, however, was mixed as multiples declined in
the United States and increased in Europe.
The premium paid for large buyout deals compared to middle-market buyout deals
has increased during this cycle in the United States and remains wide in Europe,
causing increased interest in middle-market buyouts as investors search for more
attractive deal entry prices.
The current high purchase price multiples offer an excellent opportunity to exit
investments already in portfolio but make it more difficult to purchase new
companies at attractive prices.
Chart VIII Average U.S. LBO Purchase Price/Adjusted EBITDA Multiples
10x
Multiple of EBITDA
9x
8x
7x
6x
Middle-Market LBOs (<$500 MM)
Large LBOs (>$500 MM)
Source: Standard & Poor’s LCD for middle-market LBOs, data from 2009 not statistically significant
Private Equity Forecast & Desk Book for 2015
12
© 2015 Probitas Partners
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
5x
Chart IX Average European LBO Purchase Price/Adjusted EBITDA Multiples
10x
Multiple of EBITDA
9x
8x
7x
6x
Middle-Market LBOs (<€500 MM)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
5x
Large LBOs (>€500 MM)
Source: Standard & Poor’s LCD for middle-market LBOs, data from 2009 not statistically significant
Buyout Loan Volumes
U.S. loan volumes for sponsored transactions fell slightly in 2014 below 2013’s
all-time peak, and nearly equal to the 2007 pre-Crisis level (Chart X).
Much of the loan issuance between 2010 and 2013 was used to refinance
loans used to buy companies during the market peak. In 2014, as deal volumes
increased, 30% of loans issued were to finance new leveraged buyouts, with
another 15% used to finance add-on acquisitions made by portfolio companies
(Chart XI). Loans used to refinance debt fell from 41% in 2013 to 21% in 2014.
Over the last two years, investors hungry for yield have demonstrated increased
willingness to take on “covenant-lite” structures in volumes not seen since the
market peak.
European loan activity fell in 2014 from its 2013 post-Crisis high (Chart XII). The
Eurozone continued its slow economic recovery with many European banks still
under stress — a scenario that led to the creation of a number of private funds
that provide senior debt in support of buyouts or other corporate purposes, and
whose activity is not reflected in this chart.
© 2015 Probitas Partners
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Private Equity Forecast & Desk Book for 2015
Chart X U.S. Leveraged Sponsored Loan Volume
350
322
293
300
234
250
234
180
200
145
150
67
84
85
62
61
50
33
33
2002
100
120
115
2001
USD in billions
290
58
24
Large
Middle-Market
Source: Standard & Poor’s LCD
Chart XI U.S. Leveraged Sponsored Loan by Purpose, 2014
30%
LBO
5%
Refinancing
21%
13%
Dividend Recap
Acquisition
15%
16%
Other
Other Recap
Source: Standard & Poor’s LCD
Private Equity Forecast & Desk Book for 2015
14
© 2015 Probitas Partners
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2000
1999
1998
1997
0
Chart XII European Buyout Loan Volume
200
164
175
152
125
110
100
69
13
20
25
1999
2000
25
1998
50
32
39
47
64
54
39
44
2011
75
2010
EUR in billions
150
49
29
9
Funded Senior and Second Lien Bank Debt
2014
2013
2012
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
Other Sources
Source: Standard & Poor’s LCD
Note: Reflects total sources of funding of initial and secondary buyouts by a private equity firm — excludes recaps, refinancing, etc.
Debt Multiples
Debt multiples on new corporate LBO loans in the United States and Europe
increased noticeably in 2014 (Charts XIII and XIV) as deal volume increased.
In the United States they advanced to nearly their pre-Crisis peak (and exceeded
their previous 1997 peak) while a significant gap remained between middlemarket and large buyout multiples.
Though debt multiples increased in Europe, they are still significantly below their
pre-Crisis levels.
© 2015 Probitas Partners
15
Private Equity Forecast & Desk Book for 2015
Chart XIII Average Debt Multiples of U.S. Corporate LBO Loans
Multiple of EBITDA
7x
6x
5x
4x
Middle-Market LBOs
(Issuers with EBITDA <$50 MM)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
3x
Large LBOs
(Issuers with EBITDA >$50 MM)
Source: Standard & Poor’s LCD
Chart XIV Average Debt Multiples of European Corporate LBO Loans
7x
6.1
2003
4.0
4.5
4.6
4.7
2013
4.2
4x
4.4
2012
4.2
4.3
5.2
4.6
2011
4.4
2002
5.2
2001
4.8
2000
Debt/EBITDA
5x
5.5
2010
6x
5.1
3x
2x
1x
Source: Standard & Poor’s LCD
Private Equity Forecast & Desk Book for 2015
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© 2015 Probitas Partners
2014
2009
2008
2007
2006
2005
2004
1999
0x
U.S. Venture Capital
The U.S. venture capital market remains the largest, deepest, and longest-lived
sector for venture investing and consequently sets the patterns for much of that
market globally.
After three years of flat fundraising, around the $20 billion level, venture
fundraising increased significantly in 2014 (Chart XV). However, this surge is still
significantly below the amounts raised at the peak of the Internet Bubble in a
fundraising trend line totally different from the buyout markets.
U.S. venture returns (Table I) give further insight. 10-year horizon returns for
venture capital have been weak since the bursting of the Internet Bubble in 2000,
punctuated by negative 10-year horizon returns in 2010, though they have been
steadily clawing their way back. The strong IPO market in the second half of 2013
and early 2014, evidenced by high level of current 1-year returns in the table,
helped drive the surge in 2014 fundraising.
A look at the ten largest funds raised in 2013 and 2014 (Table II) highlights other
differences in fundraising between these two years. Though in both years the ten
largest funds made up roughly 40% of overall fundraising, the 2014 funds skew
much more towards late stage and growth capital investing.
Probitas Partners’ recent private equity survey highlights investor interest in
venture capital sectors going into 2015 (Chart XVI). Notable is the lack of interest
in pure cleantech funds as well as that 34% of respondents say they do not invest
in venture capital, down from 44% last year. For the first time this year we also
asked about interest in venture debt funds, which as expected, was quite low.
Chart XV Commitments to U.S. Venture Capital
80
70
73.7
USD in billions
60
50
48.0
40
40.2
30
26.7
20.7
20
5.4
6.7
1995
1996
33.1
33.0
24.7
17.6
12.8
10
30.6
20.0 21.9 19.7
13.0 11.6
11.4
4.6
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
Source: Private Equity Analyst
© 2015 Probitas Partners
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Private Equity Forecast & Desk Book for 2015
Table I U.S. Venture Capital Index Returns: IRR
For the Period Ending
Quarter
1-Year
3-Year
5-Year
10-Year
15-Year
20-Year
June, 30 2014
3.0
29.2
13.8
14.8
10.3
13.1
34.0
June, 30 2013
4.3
8.9
13.5
5.7
7.8
22.8
30.1
June, 30 2012
0.6
6.0
12.7
4.9
5.3
27.5
27.9
June, 30 2011
7.0
26.3
4.3
7.4
1.3
30.9
27.4
June, 30 2010
0.4
6.4
-2.7
4.4
-4.2
38.1
24.3
June, 30 2009
0.2
-17.1
1.3
5.7
14.3
36.3
22.7
Source: NVCA, Cambridge Associates
Table II Venture Capital Concentrations
Ten Largest VC Fundraises of 2013
Fund
Ten Largest VC Fundraises of 2014
Capital Raised
USD MM
Capital Raised
USD MM
Fund
Insight Venture Partners VIII
$2,576
Tiger Global Private Investment Partners IX
$2,500
Greylock IV
$1,017
Technology Crossover Ventures VIII
$2,230
$735
Andreessen Horowitz Fund IV
$1,500
General Catalyst Group VII
$675
Tiger Global Private Investment Partners IX
$1,500
SAP Ventures Fund II *
$651
J.P. Morgan Digital Growth Fund II
$1,184
Battery Ventures X
$650
Accel Growth Fund III
$1,000
Sequoia Capital US Venture Fund XIV
$553
Founders Fund V
$1,000
Third Rock Ventures III
$516
KPCB Digital Growth Fund II
$750
Matrix Partners X
$450
Bain Capital Venture Partners 2014
$718
Spark Capital IV
$450
Canaan X
$675
Orbimed Private Investments V
Total Top Ten
$8,273
Total Top Ten
$13,057
Total Number of Funds That Raised Capital
205
Total Number of Funds That Raised Capital
317
Ten as Percent of Total Fundraising
42%
Ten as Percent of Total Fundraising
40%
Source: Probitas Partners; * SAP AG is the sole investor in the fund
Private Equity Forecast & Desk Book for 2015
18
© 2015 Probitas Partners
Chart XVI Most Attractive Venture Capital Sectors
In venture capital, I focus on funds active in the following sectors or stages (choose all that apply):
Funds investing in multiple sectors
15
29
Technology only funds
19
Life science only funds
1
Cleantech only funds
2
Venture debt funds
25
Multi-stage
35
Late stage
31
Mid-stage
39
Early stage
17
Seed stage
4
Only historic returns no matter the sector
6
Venture capital via fund-of-funds
34
I do not invest in venture capital
0
Other
0
10
20
30
40
50
Percentage of Respondents (%)
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
© 2015 Probitas Partners
19
Private Equity Forecast & Desk Book for 2015
Distressed Private Equity
Investor activity in distressed private equity tends to be cyclical, surging as recessions
roll through different economies or industry sectors, and then receding to more
normal baseline levels. However, the Global Financial Crisis and its long aftermath
have been anything but normal:
The risks presented by the Global Financial Crisis were so intense that governments
worldwide pumped unprecedented levels of liquidity into the system, an action
that spurred more refinancings than bankruptcies.
Correlations across different geographies and asset types seemed to converge in
late 2008 and early 2009, reducing the benefits of diversification.
Banking regulators globally eased pressure on banks’ distressed loan portfolios
in the face of the Global Financial Crisis, granting them more leeway to “kick the
can down the road” or “amend, extend and pretend” rather than deal proactively
with troubled assets.
As a result, the “wall of debt maturities” that has frequently been discussed has
been continually pushed back by ongoing waves of government created liquidity.
To date, the “100-year flood” of distressed opportunities broadly anticipated in
2008 has become a more protracted affair, even as the Eurozone slipped into a
second recession along with renewed central bank action.
Where Do We Stand Now?
Fundraising was up slightly for distressed private equity funds in 2014 (Chart XVII),
driven by larger interest in distressed debt and opportunistic credit funds.
The largest funds tend to have global mandates with the ability to shift resources
depending upon where opportunities present themselves. The North American market
remains the largest and longest-lived distressed private equity market (Charts XVIII
and XIX). Asia is a newer geography for distressed investing, and most funds focused
on Asia are special situations vehicles.
Many funds in the distressed sector run hybrid strategies that combine various skill
sets to address different sectors. Going into 2015, investors seeking exposure in “pure
play” distressed strategies remained most focused on value-added approaches that
can generate attractive multiples (Chart XX). Distressed debt for control strategies,
though popular with investors, are becoming more difficult to execute as increased
competition makes it more difficult for fund managers to build positions that will give
them a controlling stake in a company at an attractive valuation.
Private Equity Forecast & Desk Book for 2015
20
© 2015 Probitas Partners
“The ‘100-year
flood’ of
distressed
opportunities
broadly
anticipated
in 2008 has
become a more
protracted
affair”
For the first time in Probitas Partners’ surveys, no respondents indicated an
interest in distressed debt trading strategies.
Opportunities for distressed investing do not march in lock step globally or in
different market sectors. Many investors feel that the phased implementation
of Basel III over the next couple of years will result in increased asset sales from
European banks, and activity in that sector increased in 2014.
The pattern of strongly increasing high-yield bond issuance followed by a sharp
increase in default rates (Chart XXI provides the U.S. example) did not occur this
cycle. Default rates remain extremely low, in large part because much of the bond
and loan issuance over the last five years has been driven by refinancings instead
of new issuance, a situation driven in large part by central bank liquidity policies
and regulatory forbearance. In reaction, certain strategies in distressed private
equity have broadened beyond corporate debt and also toward stressed but not
distressed situations, moving a bit more into the private debt arena.
Abnormally low interest rates have papered over problems at a number of
companies, but have not solved those problems. As central banks move to allow
higher interest rates, default rates are likely to increase as well.
Chart XVII Global Distressed Private Equity Fundraising
60
51.4
USD in billions
50
39.0
40
34.7
30
19.3
20
10
5.4
7.9
10.3
23.1
24.3
2010
2011
28.5
28.3
2013
2014
7.9
0
2003
2004
2005
2006
2007
2008
2009
2012
Turnaround/Special Situations
Distressed Debt/Opportunistic Credit
Source: Probitas Partners
© 2015 Probitas Partners
21
Private Equity Forecast & Desk Book for 2015
Chart XVIII Capital Raised for Distressed Debt/Opportunistic Credit Funds, 2014 by Geography
(In terms of USD raised):
56%
North America
Global
30%
Europe
12%
Asia
2%
Source: Probitas Partners, PREQIN, Private Equity Analyst
Chart XIX Capital Raised for Turnaround/Special Situations Funds, 2014 by Geography
(In terms of USD raised):
North America
52%
Global
13%
Europe
16%
Asia
19%
Source: Probitas Partners, PREQIN, Private Equity Analyst
Private Equity Forecast & Desk Book for 2015
22
© 2015 Probitas Partners
Chart XX Distressed Investments
Within the distressed debt/restructuring sector, I am most interested in (choose no more than two):
Distressed debt for control
funds (loan-to-own)
54
Restructuring/turnaround funds
(focused on equity, not debt)
52
Opportunistic credit (mispriced debt,
small loan portfolios, etc.)
32
Distressed debt: active/
non-control funds
22
17
I do not invest in this sector
5
Distressed debt hedge funds
Distressed debt trading funds
0
Other
0
0
10
20
30
40
50
60
Percentage of Respondents (%)
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
Chart XXI High-Yield Bond Issuance and Annual Default Rates: 1980–2014
15
350
USD in billions
250
10
200
150
5
100
Percentage (%)
300
50
0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
New Issue Volume
Default Rate
Source: NYU Stern School, Moody’s, Standard & Poor’s
© 2015 Probitas Partners
23
Private Equity Forecast & Desk Book for 2015
Asia
Asia is distinctively split between the developed economies of Australia, Japan,
and South Korea and the emerging markets of China, India, and Southeast Asia.
In the emerging markets, growth capital — not control buyouts — continues to drive
overall activity.
As noted in Chart III (on page 8), commitments for Asia-focused funds remained
fairly flat in 2014, but is still 30% less than 2011 peak.
“China is still
the primary
focus for
investors
targeting
Asia”
There was a marked shift in geographic focus between 2011 and 2014 (Charts
XXII and XXIII) from Greater China funds to Pan-Asian funds, driven by the closings
of a number of Pan-Asian funds such as Barings, Carlyle Asia, CVC Asia, Morgan
Stanley Asia, and TPG Asia. However, growth capital funds regained their spot as
the most popular fund strategy (Chart XXIV).
Fundraising for China-focused funds denominated in both U.S. dollars and RMB
increased in 2014 due to a steep increase in funds denominated in U.S. dollars
(Chart XXV). However, continued concerns over slowing economic growth meant
that fundraising focused on China was still 45% off its 2011 peak.
Even with these declines, China is still the primary focus for investors targeting
Asia (Chart XXVI). Pan-Asian funds continue to be of strong interest to investors
and, because these funds tend to be very large, they have an outsized impact
on fundraising totals. Southeast Asia continues to attract significant interest in
our investor surveys, while the Australian market is also targeted by a number of
the respondents to Probitas Partners’ latest survey. Interest in Japan, which had
rebounded going into 2014 in reaction to hopes for a positive impact on private
equity of Abenomics, has fallen back as investors looked forward to 2015. Interest
in India, on the other hand, has picked up in the wake of its latest general election.
Chart XXII Asian Fund Commitments
by Geography, 2014
Chart XXIII Asian Fund Commitments
by Geography, 2011
61%
43%
32%
5%
6%
2%
4%
12%
9%
6%
17%
3%
Greater China
Pan-Asia
Japan and South Korea
South Asia
Australasia
Source: Asia Private Equity Research
Note: South Asia covers India, Pakistan, Sri Lanka and Bangladesh
Private Equity Forecast & Desk Book for 2015
24
© 2015 Probitas Partners
Southeast Asia
Chart XXIV Fund Strategies for Asia-Focused Funds, 2014
46%
3%
Growth/Expansion
Buyouts
21%
Seed/Early Stage
30%
Mezzanine
Source: Asia Private Equity Research
Chart XXV Commitments to China-Focused Funds by Fund Denomination
40
34.2
35
USD in billions
30
25
6.5
17.9
16.3
13.1
15
10
21.9
19.1
20
12.2
8.7
5
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Foreign Currency
RMB
Source: Asia Private Equity Research
© 2015 Probitas Partners
25
Private Equity Forecast & Desk Book for 2015
Chart XXVI Most Attractive Asian Markets
Which Asian markets do you find most attractive at the moment (choose no more than three):
47
China
38
28
Pan-Asian funds
20
25
Southeast Asia
22
19
Australia
21
13
India
7
12
South Korea
14
11
Japan
21
8
Indonesia
2
4
Vietnam
2
0
Taiwan
1
2
Asia via global funds
4
5
Asia via fund-of-funds
6
18
I do not invest in Asia
22
1
Other
2
0
10
20
30
Percentage of Respondents (%)
2015
2014
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
Private Equity Forecast & Desk Book for 2015
26
© 2015 Probitas Partners
40
50
Europe
Europe is the most developed private equity market with the longest history after the
United States and is dominated by buyout funds. It is also a market under lingering
pressure from a slow recovery after the Global Financial Crisis.
As detailed in Chart II (on page 7), buyout/growth capital fundraising
decreased nearly 30% in 2014, triggering a steep decline in overall European
fundraising. As Chart XXVII shows, the reason for that was a significant decline in
Pan-European and larger regionally focused funds. A number of these funds
raised amounts of capital in 2013 and had cleared the market as 2014 began.
On the other hand, amounts committed to country-focused funds actually
increased by over 20% during the year. Though this sector dominates the market
in Europe in terms of number of funds, each individual fund tends to be much
smaller than its Pan-European brethren.
Looking forward, our survey indicated strong interest in middle-market countryfocused funds, especially those targeting the stronger economies of Northern
Europe (Chart XXVIII) — with interest in Central and Eastern Europe being notably
weak even before the ongoing dispute between Russia and Ukraine.
The most noticeable shift in interest between 2014 and 2015 was an increase
in those targeting Spain, a trend that is even more marked among European
respondents to our survey. It reflects the feeling that Spain has bottomed out and
attractive private equity opportunities are increasing.
Venture capital fundraising in Europe fell in 2014, the opposite of the trend in the
United States (Chart XXIX). Investors were most interested in European venture
funds that focus on technology, but it remains very much a niche at a fraction
of U.S. fundraising. The best European fund managers continue to struggle to
achieve comparable returns to top tier U.S. managers.
Chart XXVII Commitments to European Corporate Finance Funds by Geography
70
63.9
60
53.0
56.6
57.4
45.5
EUR in billions
50
40
30
35.8
31.0
22.9
20
18.0
15.2
14.9
2009
2010
32.8
10
0
2003
2004
2005
2006
Pan-European
2007
2008
Regionally-Focused
2011
Country-Focused
2012
2013
2014
Other
Source: Probitas Partners
Note: “Other” includes commitments to funds with a geographical focus on Eastern Europe, Cyprus, Greece, and Turkey
© 2015 Probitas Partners
27
Private Equity Forecast & Desk Book for 2015
Chart XXVIII Most Attractive European Markets
For European country/regionally-focused funds, I find the most attractive markets to be (choose no more than three):
59
60
Nordic Region
66
United Kingdom
49
37
Germany
48
22
21
Benelux
15
Europe via Pan-European funds
17
10
France
7
12
Spain
7
4
4
Italy
5
Central Europe (Poland, Czech
Republic, Hungary, etc.)
3
2
2
Eastern Europe (Russia,
Ukraine, Georgia, etc.)
1
Europe via fund-of-fund
2
11
10
I do not invest in Europe
4
Other
2
0
10
20
30
40
50
Percentage of Respondents (%)
2015
2014
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
Private Equity Forecast & Desk Book for 2015
28
© 2015 Probitas Partners
60
70
Chart XXIX Commitments to European Venture Capital Partnerships
8
6.7
7
EUR in billions
6
5
4.5
4
3.5
3
2
3.5
2.8
2.5
1.5
0.9
1
0.9
1.0
2009
2010
1.7
1.5
0
2003
2004
2005
2006
2007
Life Sciences
2008
Technology
Cleantech
2011
2012
2013
2014
Diversified
Source: Probitas Partners
© 2015 Probitas Partners
29
Private Equity Forecast & Desk Book for 2015
Emerging Markets
Private equity fundraising for emerging markets in its various country or regional
sectors are a series of niche markets for which investor interest can vary strongly
year-to-year based upon economic, political, regulatory, or technical factors. Sanctions
against Russia over the Ukraine conflict and the closure of the IPO market in China
in 2013 provide some recent negative examples. 2014’s surge of Latin American
fundraising, driven in large part by the fact that three of the five largest managers in
Latin America all launched substantial funds last year that accounted for more than
60% of total fundraising, is a positive example.
Though a number of investors still have concerns about China’s economy, interest
in China significantly rebounded going into 2015 (Chart XXX). China is by far the
most developed private equity sector in the emerging markets; funds targeting
China raised $17.9 billion last year.
At the other end of the BRICs scale is Russia. It has never been a major target
for private equity investors, but in this year’s survey literally no respondents were
targeting it.
A quarter of the respondents to the survey were not interested at all in investing
in the emerging markets — though that is an improvement on the 32% who had
no interest in emerging markets in last year’s survey.
There is increasing interest in the Andes region in Latin America as a number
of investors look to diversify their exposure away from heavy concentrations
on Brazil.
The EMPEA has reported that 2014 was the largest year ever for commitments
raised for funds focused on Sub-Saharan Africa, with $4 billion raised.
Private Equity Forecast & Desk Book for 2015
30
© 2015 Probitas Partners
Chart XXX Emerging Markets
Which emerging markets do you find most attractive (choose no more than four):
44
China
33
22
23
Brazil
16
Pan-Latin America
18
15
Indonesia
11
15
India
9
14
Southeast Asia
20
13
Pan-Asia
11
Central Europe (Poland, Czech
Republic, Hungary, etc.)
10
6
8
Turkey
5
8
Colombia
7
7
South Korea
12
6
Mexico
9
6
Sub-Saharan Africa
7
5
Vietnam
7
Emerging market via
funds-of-funds
3
5
3
Peru
5
3
MENA
2
Eastern Europe (Russia,
Ukraine, Georgia, etc.)
2
2
I only invest in global emerging
market funds
2
3
1
Chile
8
0
Russia
6
I do not invest in
emerging markets
25
32
0
Other
2
0
5
10
15
20
25
30
35
40
45
50
Percentage of Respondents (%)
2015
2014
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
© 2015 Probitas Partners
31
Private Equity Forecast & Desk Book for 2015
Private Debt Markets
Private debt markets are going through a period of turmoil and expansion that is
creating new opportunities. In response to stresses at banks in North America and
especially Europe, a number of new private vehicles have been launched targeting
direct lending/senior debt while other sub-sectors have gained in importance as well.
Probitas Partners tracks fundraising in six different private debt sectors:
Mezzanine, targeting subordinated debt with equity kickers.
Direct lending/senior debt, targeting senior debt investments made either
directly or through secondary markets.
Unitranche/structured credit, funds that operate across the credit spectrum,
often using preferred or common equity as well.
Venture debt, usually targeting early stage venture capital backed companies
with a focus on generating returns through equity warrants.
Energy debt, funds focused on energy sector debt investments (unusual
because most debt funds are diversified by industry).
Royalty funds, which invest in royalty income streams from patented products,
mainly in the life sciences sector, which often have bond-like characteristics.
Fundraising for these sectors was strong in 2014, but off the all-time peak of 2013
(Chart XXXI). Though mezzanine is the longest-lived and historically the deepest
sector of the market, direct lending/senior debt and unitranche/structured credit
funds have eclipsed it over the last three years.
Energy debt had by far its largest fundraising year in 2013 — but interest plunged
substantially with the oil price fall in 2014.
As far as geography is concerned, funds focused on North America and funds
with a global mandate have tended to lead the market, but interest in Europe
has surged over the last two years led by direct lending/senior debt funds (Chart
XXXII). Asia and other emerging markets remain a small part of the market.
Investor allocations to private debt vary tremendously, with certain investors
placing investments into specific allocations to illiquid credit, others making
commitments from special situations or tactical allocation buckets, while others
make investments from private equity allocations — at least for certain strategies.
There are a few investors who include distressed debt, real estate debt, and
infrastructure debt into overall credit allocations, though many more investors
consider these as part of distressed private equity, real estate, or infrastructure
allocations, respectively.
Private Equity Forecast & Desk Book for 2015
32
© 2015 Probitas Partners
“Fundraising ...
was strong in
2014, but off the
all-time peak
of 2013”
Chart XXXI Global Private Debt Fundraising by Strategy
60
53.5
USD in billions
50
40
35.6
30
33.7
33.5
25.6
24.9
12.2
10
21.2
18.7
20
10.6
8.5
6.8
0
2003
2004
Mezzanine
2005
2006
2007
Direct Lending/
Senior Debt
2008
2009
Unitrache/
Structured Credit
2010
2011
2012
Venture Debt
Energy Debt
2013
2014
Royalties
Source: Probitas Partners
Chart XXXII Global Private Debt Fundraising by Geography
60
53.5
USD in billions
50
40
35.6
30
33.7
33.5
25.6
24.9
12.2
10
21.2
18.7
20
10.6
8.5
6.8
0
2003
2004
2005
2006
Global
2007
2008
North America
2009
2010
Europe
Asia
2011
2012
2013
2014
Other
Source: Probitas Partners
© 2015 Probitas Partners
33
Private Equity Forecast & Desk Book for 2015
Energy and Private Equity
Over the past five years investing in the energy sector had been of increasing
interest to private equity investors, especially vehicles targeting fracking and other
alternative production strategies in North America. As detailed in the previous
section on private debt, there was also strong interest in energy debt during 2012
and 2013. The dramatic drop in oil prices that began in the summer of 2014 has
upset those trends.
The price of oil has a history of being stable for long periods interspersed with
periods of extreme volatility and sharp price movements (Chart XXXIII). Many of
the sharpest movements have been driven by political issues, and though over the
long run the trend has been towards increasing prices, many of the changes have
quickly reversed themselves before settling in at a new equilibrium.
The current fall in oil prices has been caused by dramatically increased production
in the United States driven by alternative methods of production coupled with
Saudi Arabia’s decision (for various reasons) to maintain production levels even
as prices have fallen.
Natural gas production and pricing in the United States tells a different story
driven by similar factors. Chart XXXIV details U.S. natural gas prices over the
last 20 years. Because natural gas is more difficult to transport overseas, its
pricing is more dominated by local factors. Alternative production technologies
and dramatically increased natural gas supply had a more immediate impact on
U.S. natural gas prices, which have been relatively low over the last six years.
The current steep decrease in oil prices is having a significant impact on a number
of companies in private equity portfolios, dragging down reported performance.
At the same time, it is also presenting new investment opportunities in energy
companies under stress. In fact, there have recently been a few funds launched
specifically targeting distressed energy investments, both in equity and debt. The
depth of this opportunity, however, is highly dependent upon how long prices
will be depressed and where prices stabilize — factors impossible to predict at
this point.
Private Equity Forecast & Desk Book for 2015
34
© 2015 Probitas Partners
Chart XXXIII Crude Oil Prices, West Texas Intermediate, 1970–2015
Arab Oil
Embargo
Saudis
unilaterally
increase
production
Iran Crisis
OPEC
production
cuts
Invasion
of Kuwait
Increased
worries over
Oil shock,
long-term
Great
supply; Iraq War Recession
Arab
Spring
140
Price per Barrel (USD)
120
100
80
60
40
20
Jan. ’14
Jan. ’12
Jan. ’10
Jan. ’08
Jan. ’06
Jan. ’04
Jan. ’02
Jan. ’00
Jan. ’98
Jan. ’96
Jan. ’94
Jan. ’92
Jan. ’90
Jan. ’88
Jan. ’86
Jan. ’84
Jan. ’82
Jan. ’80
Jan. ’78
Jan. ’76
Jan. ’74
Jan. ’72
Jan. ’70
0
Source: Federal Reserve Bank of St. Louis, current dollar basis
Chart XXXIV Natural Gas Prices (Henry Hub), 1997–2014
14
USD per MM BTUs
12
10
8
6
4
2
Dec. ’14
Dec. ’13
Dec. ’12
Dec. ’11
Dec. ’10
Dec. ’09
Dec. ’08
Dec. ’07
Dec. ’06
Dec. ’05
Dec. ’04
Dec. ’03
Dec. ’02
Dec. ’01
Dec. ’00
Dec. ’99
Dec. ’98
Dec. ’97
Dec. ’96
0
Source: Energy Information Administration (EIA)
© 2015 Probitas Partners
35
Private Equity Forecast & Desk Book for 2015
The Secondary Market
The secondary market for private equity has expanded rapidly over the last decade
as more sophisticated investors have turned to secondaries as an investment
management tool.
“Large,
sophisticated
investors are
increasingly
buying
positions
directly”
Fundraising for secondary fund specialists rebounded strongly in 2014, though
still below its all-time high of 2012 (Chart XXXV). Historically, fundraising in the
sector has been volatile year-to-year driven more to the timing of a few large
funds coming to market rather than any sharp change in investor interest.
Secondary market transaction volume hit a dramatic new high in 2014,
substantially above specialist secondary fundraising.
This surge in transaction levels highlights the fact that large, sophisticated
investors are increasingly buying positions directly instead of investing through
specialized secondary funds (Chart XXXVI). When combined with amounts
targeting secondaries through primary funds-of-funds, the amount of capital
focused on secondaries in Chart XXXV is understated substantially.
Chart XXXV Secondary Market Transaction Volume and Capital Raised by Secondary Fund Specialists
45
40
35
USD in billions
30
23.9
25
22.3
20.7
20
15.1
15
11.3
2.1
4.1
2002
2.2
6.4
4.5
2001
1997
2.6
2000
0.4
1999
0.8
1996
5
1998
10
3.5
5.6
7.4
6.1
11.2
6.9
Capital Raised
Transaction Volume
Source: Probitas Partners
Private Equity Forecast & Desk Book for 2015
36
© 2015 Probitas Partners
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0
Chart XXXVI Secondary Market Investments
In the secondary market, my firm (choose all that apply):
Actively purchases direct positions
in funds in the secondary market
50
Actively invests in secondary funds
49
Has sold or is considering selling funds in our
portfolio for portfolio management purposes
31
Actively purchases direct positions in
companies in the secondary market
14
Provides advice to clients on secondaries
13
Is not active in secondaries in any manner
13
Other
0
0
10
20
30
40
50
60
Percentage of Respondents (%)
Source: Probitas Partners’ Private Equity Institutional Investor Trends for 2015 Survey
© 2015 Probitas Partners
37
Private Equity Forecast & Desk Book for 2015
Real Assets
Real assets are a relatively new area of private equity investing with few funds in the
sector having long track records, and consequently, long-term trend line analysis is
not meaningful. The sector has developed impetus from sovereign wealth funds and
public sector pension plans that are interested in assets that can act as an inflation
hedge over a long investment horizon while providing some downside protection
as well. In addition, many mature pension plans are interested in investments that
generate some amount of current cash flow, as certain of these sectors do, to help
meet their ongoing obligations to pensioners.
There are also a number of opportunistic strategies developing in certain sectors
that focus on allied industries — such as food processing, storage, or logistics as
opposed to investing strictly in agricultural land — in the same way that many buyout
funds have invested for a long time in midstream energy companies are one step
removed from direct exposure to commodity prices.
The sub-sectors of real assets that we track include:
Agriculture: The newest sector with many first-time funds. The major focus is
on producing farm or pastureland, though a number of funds will also invest in
allied logistical areas. Certain of these funds focus on developed markets and
fully developed producing properties, while other funds are more focused on
transformative investments, often in emerging markets.
Metals and Mining: Another newer area, though there are very few managers
who have been active since the 1990s. As with agriculture, a few funds also invest
in allied logistical areas. Many of these funds have some degree of exposure
to emerging markets as these strategies are dependent on the location of the
underlying resources.
Oil and Gas: Though there are a number of private equity and infrastructure
funds that invest broadly in energy, usually in midstream transactions, historically
relatively few institutional funds invested solely in oil and gas exploration and
production, though the fracking revolution in North America significantly changed
that over the last five years. As covered previously, this sector is currently under
some stress due to the sudden, steep decline in oil prices.
Timber: Timber investing has the longest institutional investing history among
real assets, though more of that investment has been made through separate
accounts instead of through funds. The sector tends to be split into investments
targeting slow growing hardwood and fast growing softwoods usually grown for
pulp or chips.
Private Equity Forecast & Desk Book for 2015
38
© 2015 Probitas Partners
Shipping and Aviation Assets: A few investors consider the purchase of ships
or aircraft real assets, though there are very few funds in this sector. Though the
underlying assets are certainly physical, they are not commodities. These markets
are very cyclical and certain fund managers are focused on this sector through
distressed private equity funds and not from real asset platforms.
Infrastructure and real estate investing are two other sectors that certain investors
include conceptually within real assets. However, these two asset classes are larger
and better established, and most investors have separate, dedicated allocations
for them.
Chart XXXVII shows the sector focus of real asset funds raised in 2014; a total of
$8.2 billion was committed to the sector during the year. Though down considerably
from 2013, oil and gas focused funds were still the largest sector of interest, followed
by agriculture, which expanded during the year. It should be noted that there is
a significant amount of fundraising done through separate accounts in the timber
sector, so that activity is clearly understated.
Few institutional investors have dedicated allocations to all the sub-sectors of real
assets. Depending on the individual fund strategy, they may invest through their
private equity allocation or through inflation-linked or special situations mandates
that have a broad investing remit. A few of them have specific allocations for narrow
sectors such as timber. Many of these funds have significant emerging markets
exposure, reflecting the geographic location of assets with strong competitive
advantage — such as Brazilian soybean farms or Chilean copper mines.
Chart XXXVII Real Asset Fundraising, 2014 by Sector
(In terms of capital raised in USD):
45%
Oil and Gas
3%
Agriculture
7%
Mining and Minerals
8%
Timber
14%
23%
Diversified
Shipping and Aircraft
Source: Probitas Partners
© 2015 Probitas Partners
39
Private Equity Forecast & Desk Book for 2015
Private Equity Forecast & Desk Book for 2015
© 2015 Probitas Partners
Probitas Funds Group, LLC
Probitas Funds Group, LLC
PFG-UK Ltd.
Probitas Hong Kong Limited
425 California Street
Suite 2300
San Francisco, CA 94104
USA
Tel: +1 415 402 0700
1120 Ave. of the Americas
Suite 1802
New York, NY 10036
USA
Tel: +1 212 403 3662
1 Berkeley Street
London
W1J 8DJ
UK
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