Investors worried about private equity strategy - survey

By Megan Davies

NEW YORK, June 9 (Reuters) - Investors in the private equity industry are worried that buyout firms will stray too far from their expertise as the credit crunch limits their ability to do large buyouts, a survey on Monday said.

Private equity firms, which raised billions during the boom of the past few years, are facing the problem of finding places to put that capital if not into leveraged buyouts.

Some have pursued investments in emerging markets, taking minority stakes in public companies or buying debt of their portfolio companies.

But three quarters of institutional investors in private equity -- known as limited partners, or LPs -- are worried that private equity fund managers will move into strategies or geographies that they don't know enough about, the survey by Coller Capital said.

The concerns are particularly acute in North America, where 84 percent of LPs see the strategy drift as a risk to their returns, said Coller, which invests in private equity "secondaries" -- meaning it buys original investors' stakes in private equity funds and portfolios of investments in companies.

"The real problem with strategy drift to investors is that you're betting on a management team having expertise and experience and a track record in a certain type of investing -- investing in control positions," said Frank Morgan, a Partner at Coller's New York office.

Buying public securities or minority positions in companies is "perhaps a different talent and skillset" and not necessarily why investors put money into a particular fund to begin with, Morgan said. "So it creates a concern," he added.

Despite the concerns, over a third of the 103 LPs surveyed are planning to increase their allocations to private equity over the next year, with only 3 percent planning a reduction.

LPs thought the best opportunities in private equity in the coming year would be in small and medium-sized European buyouts. They thought the best sectors were those with long-term growth potential, such as health care and technology, while those at risk from economic downturn, like real estate and consumer, were seen less attractive.

Similar concerns were raised a week ago by British private equity financier Guy Hands, who warned that alternative investments some private equity firms are pursuing are risky and may not deliver high returns. (Reporting by Megan Davies; Editing by Brian Moss)