A new Altius Associates’ survey, entitled ‘The Key Challenges facing the private equity sector in 2014’ finds that co-investment programs will continue to grow in popularity but warns that investors face significant downside risk if they are poorly executed. Specifically, LPs must make structural adaptations to evaluate investments relative to their portfolios, practice effective due diligence, and be able to make recommendations and get approvals from investment committees quickly.
The survey described this and nine other challenges facing PE this year in Finalternatives. Another highlight of the survey was the finding for fund managers active in Europe. The key challenge in Europe is not to overpay and yet still manage to deploy a significant amount of dry powder. The main issue in the US buyout market is high valuations based on multiple of projected earning that are quite a bit greater than historic multiple. For co-investing in Asia, Altius said that investors will do well to continue to grow their programs in a “disciplined and highly selective” way as conditions for investing seem generally better compared to anytime over the past few years. A word of caution was to underweight on real assets in emerging markets due to some overvaluing in areas like renewable energy. The report was bullish on secondaries due to fund reductions and regulatory pressures. (Image source: Preqin)