PEI: Private Equity to the Rescue

Private Equity to the Rescue

Private Equity International

‘Traditional’ asset classes are expected to produce lackluster returns this year, highlighting once again the importance of private equity for investors to reach their overall returns objectives.

Lower your expectations. That’s the message many financial analysts and market gurus are delivering to investors this year, predicting volatility – and perhaps global recession – on the back of issues including Europe’s debt crisis as well as high unemployment and reduced consumer spending in developed economies.

Bill Gross, head of the world’s largest bond fund manager PIMCO, said in a recent investor outlook letter that stocks, bonds and commodities were likely to produce returns in the range of just 2 to 5 percent this year – well off from the low double-digit returns most investors expect from their equities portfolios.

For many institutional investors, that means that alternative asset classes are likely to take on an even more important role in their portfolios. That’s not to say that allocations to private equity will suddenly be increased in a reactionary way – nor that private equity funds will be immune to the effects of any broader market uncertainty (just ask an LP about the write-downs that plagued portfolios in 2008-2009) – but long-term outperformance by private equity funds will be relied upon even more to drive their investment programmes’ overall returns.

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