EUROPE - European institutional investors' growing appetite for diversification and the "superior returns" of private equity is set to encourage rapid growths in the asset class, studies have revealed today.

In a study by Adveq presented at a Frankfurt press conference today, the Zurich-based private equity fund-of-funds manager showed that no less than 40% of German institutional investors already have private equity investments.

Also the survey revealed that investors are rapidly implementing their planned increase in allocation, and that, overall, the  market shows more "professionalism", the firm said: institutional investors plan to increase the 2% in private equity of their total assets under management to 2.2% over the next three years.

The main emphasis is on investments in Europe, where 64% of private equity investments are made: "Investments in Germany alone constitute 28%," the report said.

The European allocation will remain unchanged in the near future, however the study predicts that investments made in the German market will fall slightly. The share allocation in the US is set to decline from 32% to 28% over the next five years, while the Asian market will further grow in importance.

The study, a follow-up to the firm's 2003 study, covered 263 companies - equivalent to 33% of the German market - to gauge 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.

Simultaneously, an analysis by Alpinvest, the private equity investment vehicle owned by Dutch pension funds PGGM and ABP, who together invest €30bn (£18.93bn) in private equity, shows that also Dutch institutional investors hunt for private equity.

The higher returns and better manageable risk that private equity offers attract pension money, according to the analysis.

Of all take-overs that are applicable over the next 10 years, 40% will be done by private-equity parties and the scope of the capital will triple from $850bn to $2850bn, Alpinvest said.

"We have noticed that institutions such as pension funds and insurers are withdrawing assets from public equity and putting it into private equity," Wim Borgdorff, head of Alpinvest's fund investments, told Dutch newspaper Het Financieele Dagblad.

However, the growth lies particularly with the larger players in the field, as it will be difficult for the smaller private-equity firms to follow the growth trend, Borgdorff argued.

Additionally, the Adveq-study claims that fund of funds, which are currently used by 51% of institutions, are the most popular way of accessing private equity investment and this will remain unchanged.

Also in Sweden, one of the first countries in Europe to develop a private equity market, private equity is set to gain weight, according to an article by the Financial Times today.

Already this year private equity deals have soared to $12.3bn, compared with $11.4bn in the previous four years combined.

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