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German institutions increase their private equity investments28/03/2007. Source: Adveq.
 As well as demonstrating an increased professionalism toward the asset class, Adveq's second survey of the strategies of German institutional investors for private equity investment reveals that German institutional investors, of whom no less than 40 per cent have private equity investments, are rapidly implementing their planned increase in allocation. In 2003 private equity accounted for a 1.2 per cent share of total investments, with a target allocation of around 2.2 per cent.
Today this allocation has already reached 2.0 per cent.
The study, which was conducted in conjunction with the University of Applied Sciences in Wiesbaden, is a follow-up study to Adveq’s first full-market survey in Germany in 2003 and takes its place in a series of similar studies sponsored by Adveq in recent years (Australia 2005, Switzerland 2004, the Netherlands 2005, Nordic 2005, and the United Kingdom 2005).
The objective of the study was to gain an insight into the current private equity investment strategies of German institutional investors and to find out how their allocations will change in this investment category over the next few years. In total, the study covered 263 companies which is equivalent to 33% of the entire market.
The majority of participants were insurance companies (64%), followed by pension funds (24%) and other categories such as professional pension plans, German "Pensionfonds and other companies. Key findings from the study can be summarized as follows: Planned increase in allocation: the study shows a favorable outlook for private equity investments by German investors. Institutional investors currently commit on average 2.0% of their total assets under management to private equity investments and plan to increase this to 2.2% over the next three years.
Fund of funds as dominating form of access: fund of funds, which are currently used by 51% of institutions, are now the most popular way of accessing private equity investment. Fund investments account for a further 41% of the allocation, while direct investments account for only 8%. This distribution is expected to remain almost the same in the future with fund of funds at 52%, fund investments at 41% and direct investments at 7%.
Main emphasis on investments in Europe – newcomer is Asia: the study shows that German investors are primarily focused on the European market, where 64% of private equity investments are made. Investments in Germany alone constitute 28%. In the next two to five years the European allocation will remain unchanged, although those investments made in the German market will fall to 24%. The US is an important region with a 32% share in overall allocation, but this is set to decline to 28%.
Compared with Adveq’s 2003 study the Asian market has grown in importance. This region is developing into an important market for private equity investments, with the allocation from institutional investors expected to rise from today's 2% to 5%.
Diversification and increasing return as primary objectives: for German institutions, the most important objectives for investing in private equity are portfolio diversification and increasing return. On average there is an absolute return expectation of 12.5% and a relative return objective of 397 basis points compared with investment in public equities.
Bruno E. Raschle, Managing Director of Adveq, comments on the results of the study: "In the last few years many German investors have come to recognize the benefits of private equity investment within an equity portfolio and allocations to the investment class have increased as a result. We can assume this trend will continue to be reinforced over the next years."
Peter Laib, Managing Director of Adveq, added: "The study also demonstrates the important role fund of funds play for German investors. This is particularly true for investments that are more distance from the home market, such as in Asia or the US. In these regions many German investors lack their own know-how and their access to local fund managers is limited."
Adveq is a European independent private equity fund of funds investment manager in Europe. Founded in 1997, Adveq currently manages approximately $2.5 billion of assets for its clients.
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