Institutions deleveraging to shore-up balance sheets is leading to a buyer's market for private equity, according to one provider.
"In Europe alone the banks need to deleverage their balance sheets by 1.5 to 2.5 trillion euros," said Reto Schwager, head of investment solutions, Asia Pacific at Partners Group.
"They have to offload a lot of their private equity holdings from their balance sheets and someone has to buy these."
Speaking at the Adviser's Big Day Out Investment Manager Roadshow yesterday, Partners Group urged advisers to consider the asset class, which has previously been the domain of institutional investors, particularly given its out-performance of public markets.
The robust secondary market in private equity portfolios is burgeoning as a result of the de-leveraging and is creating good opportunities for investors, according to Schwager.
"This secondary market is a big market - it's a US$70 billion market. $70 billion of private equity portfolios came back over our desk in 2011 alone," said Schwager.
"Globally the banks have started to dispose of their private equity holdings but have only sold about a third, so around two thirds are still to come."
The supply/demand mismatch means buyers of institutional private equity portfolios can dictate price as well as pick and choose bits of an existing portfolio in a way that was not possible five years ago, Schwager said.
This approach to capitalising on secondary market value should be part of a relative investment approach whereby commitments by primary, secondary and direct means are evaluated regularly and adjusted accordingly, Partners Group believes.
In 2007 at the outset of the GFC, private equity commitments by Partners Group Global Value SICAV were at 45% in primary, 55% secondary and none in direct. This shifted entirely to 93% secondaries in 2009 and 7% in direct.
In 2011, the firm finished the year with 31% in primary, 42% in secondary and 27% direct investments.
We invite you to watch our latest video featuring Bell Direct chief executive officer Arnie Selvarajah.
In the video and accompanying article he explains how easily the increasing number of advisers using ... Watch video
We invite you to watch our latest video featuring the head of ANZ ETFS, Kris Walesby.
In it he introduces a new ETF, due for launch later in July, which tracks the Euro Stoxx 50 index of major companies ... Watch video
It is often said by equity managers with a mandate to scour the entire globe for investment ideas that getting the geographic allocation right in any given year is the most important driver of returns.
That's ... Watch video
Financial Standard editor Mark Smith presents a roundup of the week's biggest industry news and executive appointments. In this week's news:
QIC and Future Fund back $3bn renewable fund
A strategic partnership ... Watch video
We invite you to watch our latest video featuring Zurich Investments senior investment strategist Patrick Noble.
The question of how to generate a satisfactory return to meet investors' needs is becoming ... Watch video
Get it Daily
FREE to your inbox, get the Financial Standard Daily Email.