GLOBAL - Buyout funds posted returns above 25% during the last year, as private equity managers in general boasted strong performances in a favourable market, Mercer Investment Consulting has found.
The consultant said buyout firms had been fuelled by one of the strongest merger and acquisition markets since 2001. "Buyout funds attracted the majority of the capital as robust investment and realisation activity were aided by a buoyant stock market, resilient exit markets and an accommodating debt market."
Certainly pension funds have been among the key beneficiaries of the strong returns - the €81.1bn PGGM announced last week a 26.9% return on its private equity portfolio for 2006.
According to Mercer. Venture capital was another top performing sector, posting a return of 15.6%, although mercer pointed out overall IPO volume activity had been lacklustre over the period.
Mercer IC senior consultant Caroline Aboutar said: "Funds are deploying capital more rapidly than before, and this may lead to increased price pressure and a frothy market. To an increasing degree, we have seen larger buyout funds in the market well before they have prior fund returns or realisations to demonstrate to investors."
"Investors face a dilemma. The rapid deployment of capital and larger fund sizes, combined with increased deal prices and rising interest rates, may pose a risky buyout environment. Yet, if limited partners decide not to invest in mega funds, they may struggle to increase their private equity allocations."
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