PE investors expect economic improvement only after 2010: KPMG

A majority of global private equity investors believe a consistent economic improvement is not possible until next year and may happen after 2010 only, global consultancy firm KPMG said in a survey.

However, when the market turns positive, most respondents expect the energy sector to be most attractive for Private Equity (PE) investors, while infrastructure offers long-term appeal.

According to the KPMG survey of global PE players attending a conference in Florida, 43 per cent respondents said the economy would begin picking up next year, while 39 per cent said it would occur after 2010.

As little as seven per cent of respondents expect a broad recovery in mid-2009 and only 11 per cent said market could recover before the end of this year, the survey stated.

"Our survey findings indicate that market conditions are making it difficult for PE managers to make projections for their portfolio companies.

In addition, the PE sector expresses concern about the regulatory and tax landscape, funding commitments and the availability of debt," KPMG US Private Equity Group Shawn G Hessing, National Managing Partner said.

The survey pointed out that about 33 per cent respondents named emerging markets and public-private partnerships (PPP) assets/financial services (27 per cent) as strong opportunities for private equity. Further, more than 35 per cent of the 200 PE investors surveyed said energy would be the most appealing sector for PE investment as the economy recovers, with financial services and technology sharing second place (15 per cent), followed by health care and business services (12 per cent).

"PE investors by their nature work to anticipate the downside in the market, so I would say those who took this survey are planning for the worst in an elongated cycle and hoping for the best," Hessing said.

The survey revealed that in longer term infrastructure investments -- highways and sports arenas, public transportation and utilities -- were viewed by 40 per cent of respondents as next 'meaningful' PE investment opportunity.

"The respondents are concerned that the rules of engagement on public-private partnerships were likely to change as the market develops and the PE sector is seeking more clarity before investing," Hessing said.