In search of liquidity

Investors who want assets that offer both higher returns and liquidity may find the answer in the secondaries market.

A rush to cash and fixed income was the investor’s response to the onset of the credit crisis.

Since then, a growing need for higher returns has persuaded investors to allow more risk in their portfolio.

The allocation to alternatives, for instance, has risen from 7% in Q4 2009 to 17% currently, and seems likely to rise further.

Such a move comes as a surprise to Andrea Lowe, executive director of LPEQ, a body representing listed private equity firms.

She believes that investors are using alternatives as part of a defensive strategy, as returns from such investments have not been stellar.

A recent report, sponsored by LPEQ and conducted by Scorpio Partnership, suggests that, although there is a high average allocation within alternative assets to classes such as hedge funds, commodities and real estate, the same investors perceive these asset classes as low return investments.

Some also carry higher risks, such as commodities.

Hedge funds, for instance, account for an average 58% of investors’ alternatives investment. On the other hand, private equity accounts for only 11%.

However, when asked to rate each class on risk or return basis, respondents expect private equity to deliver far more significant returns compared to hedge funds, commodities and real estate over the next five years.

Lowe said: “It has been fascinating to see the disparity between which asset classes investors consider as high return and where their allocations are. The report has shown that clearly investors are rectifying this, with 50% of the sample expecting to increase their private equity allocation in the coming year. We also observe that listed private equity (LPE) is a popular route to private equity, used by 55% of respondents.”

Private equity managers’ active investment style has delivered superior performance through multiple cycles, says Andrew Lebus, partner, Pantheon Ventures.

“This performance can be easily accessed through LPE. The surveyed investors stated that they value most the liquidity of LPE. They also value the ability to more flexibly manage private equity allocation and diversification, the greater administrative simplicity of LPE and the ability today to gain exposure to private equity at discounted prices.”


Another option for the investor interested in private equity is the secondary market.

The number of investors looking to sell into the secondaries market has reached unprecedented levels, says the latest Coller Capital Barometer report.

Coller Capital is a leading participant in the secondaries market..

The main finding of the report is that secondaries have become an important tool for re-shaping portfolios, in particular for those investors in need of more liquidity


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