SEI Study: Private Equity Industry Sees Competition Heating up in Long, Slow
Climb to Recovery
Rising Allocations, More Active Secondary Market Are Bright Spots
Amid the Challenges
OAKS, PA -- (Marketwired) -- 09/10/13 -- While private equity funds
remain flush with cash, a shortage of good investment opportunities
and structural challenges are hampering the industry's already
sluggish recovery from the financial crisis, according to a study and
survey of the industry conducted by SEI (NASDAQ: SEIC).
Updating two previous surveys from 2009 and 2011, SEI's latest study,
"Key Course Adjustments for Breaking Through: Five Ways Private
Equity Managers Can Optimize Their Competitive Advantage," identified
some positive industry trends. Allocations to private equity are on
the upswing; 36 percent of investors surveyed this year said they are
increasing their allocations to the asset class, versus 26 percent in
the 2011 survey. Additionally, new sources of capital are surfacing,
including institutional investors and sovereign wealth funds in
The survey also found that an increasingly active secondary market is
helping managers to exit investments despite the slowing pace of
initial public offerings. Sixty-one percent of respondents said they
use the secondary market in some way, compared to only 30 percent in
2009, and two-thirds said secondary buyouts will be "a key driver of
deal flow" in 2013.
At the same time, the study depicts a Darwinian climate of
intensifying competition in which many funds will struggle to survive
even as new ones come forward. "Our survey reveals an industry where
buy/sell dynamics are out of balance. Private equity funds have a
glut of assets, but are starved for quality acquisitions and viable
exit opportunities in certain strategies," said Jim Cass, Managing
Director for SEI's Investment Manager Services division. "Until that
shifts, the industry appears caught between the proverbial rock and a
Among the key challenges facing the industry, the report cites:
-- A dearth of acquisition targets. Some 4,500 funds with an estimated
total of $1 trillion in uncommitted assets are chasing a limited
supply of opportunities. In fact, those surveyed named "finding
quality investment opportunities" as the industry's greatest
challenge, far outstripping concerns with new regulations or tax
-- A "mountain of dry powder." The industry's oversupply of assets is
driving up valuations of potential acquisitions at a time when rising
equity markets are having the same effect. More than 6 out of 10
survey respondents said the industry's surplus of cash is resulting in
more competitive bidding situations, and 45 percent said it is raising
sellers' price expectations. It is also making new fundraising more
difficult, according to nearly half of the managers surveyed.
-- Rising performance pressures. Investors and consultants are
increasingly looking to private equity investments as a source of
higher returns, over portfolio diversification. They also rank
performance as the second most important factor in fund selection. But
many funds are being hobbled by unprofitable investments and the stiff
competition for acquisitions. The report finds having invested at the
peak, or been unable to invest all of the capital raised, some firms
will simply be unable to produce positive returns for their limited
The report suggests five steps private equity fund managers can take to
become more competitive:
-- Utilize untapped sources of capital.
-- Adopt more flexible fee structures.
-- Capitalize on the secondary market for exits.
-- Leverage technology and operational partnerships.
-- Implement standardized filing processes.
The SEI study included a global survey of 654 institutional investors,
fund managers, and consultants in the private equity arena. The study
was conducted by the SEI Knowledge Partnership, which provides
ongoing business and marketplace intelligence to SEI's investment
manager clients. To request the full paper, visit
About SEI's Investment Manager Services Division
Manager Services division provides comprehensive operational
outsourcing solutions to support investment managers globally across
a range of registered and unregistered fund structures, diverse
investment strategies and jurisdictions. With expertise covering
traditional and alternative investment vehicles, the division applies
customized operating services, industry-leading technologies, and
and regulatory insights to each client's business
objectives. SEI's resources enable clients to meet the demands of the
marketplace and sharpen business strategies by focusing on their core
competencies. The division has been recently recognized as Top Rated
by Global Custodian, as "Best Outsourcing Provider to the Buy Side"
and "Best Fund Administrator" by Buy-Side Technology and "Most
Innovative Fund Administrator (Over $30B AUA)" in the U.S. for hedge
funds and "Best Administrator - Technology Provider" in Europe by
HFMWeek. For more information, visit www.seic.com/ims.
SEI (NASDAQ: SEIC) is a leading global provider of
investment processing, fund processing, and investment management
business outsourcing solutions that help corporations, financial
institutions, financial advisors, and ultra-high-net-worth families
create and manage wealth. As of June 30, 2013, through its
subsidiaries and partnerships in which the company has a significant
interest, SEI manages or administers $507 billion in mutual fund and
pooled or separately managed assets, including $204 billion in assets
under management and $303 billion in client assets under
administration. For more information, visit www.seic.com.
+1 215-564-3200 x 110
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