1 in 10 PE investors likely to fail on commitments

Bangalore: One in 10 investors in private equity is likely to fail on the commitments to invest funds in the next two years, according to a study. The study scales the challenges for the sector in adapting itself to the sphere of falling returns, cash-strapped investors and a hostile response from regulators and politicians.

Financial Times reported that Coller Capital, which is a specialist investor in second-hand private equity assets carried out the research, polling 120 big investors or limited partners. And, three-quarters of the investors covered in the polling expect the cash distribution from private equity investments to decline this year. More than half the investors said that the fall in distributions would constrict their ability to find and manage new private investments.

"Generally investors seem to think that things are going to get worse before they get better," said Jeremy Coller, Chief Investment Officer at Coller Capital. Most of the world's biggest investors in private equity including the U.S. pension funds have already been forced to reduce on the amount they committed to new funds, in response to losses.

However, the lawyers say that very few defaults have been witnessed so far. This is because the penalties for failing to meet the capital demand are so severe that it is preferable to sell the holding at a discount.

"There is more talk about defaults than actual defaulting going on," said Geoffrey Kittredge, a Partner at law firm Debevoise & Plimpton.