Global limited partners (LP) are likely to remain committed to the private equity (PE) industry in the longer term and plan to maintain their exposure, a top analyst believes.

Speaking at thebell’s Private Markets Investment Forum at the Millennium Hilton Seoul on Thursday (November 19), Jie Sin Chia, head of Next Generation Benchmarks Product at Preqin, said he expected the global PE industry to recover from uncertainties created by the Covid-19 pandemic.

“The size of the PE industry grew by 88% in the last five years, with PE firms managing about $4.4 trillion this year,” said Chia. “This is because of the rise of dry powder and the increase in participation (of LPs) in alternative assets.”

According to Preqin, PE is the largest alternative asset class, with PE fund managers sitting on over $1.5 trillion in capital reserves as of March this year.

The value of global buyout deals fell to $60 billion in the second quarter but rebounded to $102 billion in the third quarter, almost the same level as in the same period last year. Buyout deals in Asia bounced back strongly in the second quarter, clearly showing the recovery of the buyout space.

Quarterly fundraising has been trending downward in 2020, with aggregate fundraising in the third quarter dropping 51% from the previous three months. This is the reverse of the trend in other years, as quarterly fundraising typically dips in the first quarter of each year and steadily increases before peaking in the fourth quarter. Chia said it was because more capital had flowed into the secondary market due to the impact of the Covid-19 pandemic.

PE fund managers are likely to outperform this year. He said “the funds in 2018/2019 vintage might generate a greater variation in returns compared to the baseline scenario,” because they could deploy their dry powder at better prices in the pandemic and recession.

“The number of LP mandates issued for PE funds this year dropped compared to 2019,” but the whole proportion was not drastically different during this period, said Chia.

Most LPs do not expect that they will change their views on the long-term impact of Covid-19 on their future alternative investments strategy. More than 90% of PE investors will commit the same or more capital in the next 12 months to PE as in the previous year. (Reporting by Sun-young Kim)