INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
INSTITUTIONAL INVESTOR SENTIMENT SURVEy - PEI Media
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The optimum<br />
hurdle rate<br />
should equate<br />
to a risk-free rate<br />
of return<br />
institutional<br />
investor<br />
sentiment<br />
survey<br />
foreword<br />
Is the standard eight percent preferred return/optimum<br />
hurdle rate correct?<br />
Just right – If it ain’t<br />
broke, don’t fix it<br />
Too low<br />
executive summary<br />
allocation<br />
• fees<br />
lp – gp relationship<br />
future investments<br />
and concerns<br />
appendix: global<br />
fundraising<br />
Too high<br />
%<br />
Source: Private Equity International<br />
69 percent of global LPs believe that the standard preferred return/optimum hurdle rate<br />
is just right. In the words of some institutional investors, “the problem is not the hurdle,<br />
it is the catch-up” and that the hurdle rate “should be viewed like an index that changes<br />
with market conditions.” Simultaneously, nearly 25 percent of survey respondents believe<br />
that the eight percent preferred return is too low as the “risk/return between parties<br />
to the transactions is not in balance” and “managers are taking too much.” Global LPs<br />
also have a view that the eight percent hurdle rate is based upon the western model of<br />
private equity and in emerging markets can be viewed as too low given that these returns<br />
are possible with lower risk in more liquid debt products. Few LPs believe that eight<br />
percent is too high with one LP responding that “the market is moving to seven percent.”<br />
page 15<br />
www.privateequityconnect.com
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