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Bailey McCann, Opalesque New York:

Institutional investors continue to favor private strategies, but they are getting more cautious, according to new data from Commonfund. That caution is leading to increased allocations to mid-market and lower middle market managers.

The data shows that the performance of private equity is holding up, but investors are starting to grow wary of valuations, manager friendly terms, and ever increasing fund sizes.

The findings come from Commonfund's annual year-end survey of institutional investors, which includes responses from 415 institutions and over $1.2 trillion of investable assets.

68 percent of respondents said they were concerned about high purchase price multiples. Valuations for private companies have continued to increase in recent months, leading to concerns about multiple contraction. Some of this is driven by increasing fund size - another top concern cited by respondents. As firms raise bigger and bigger funds, they will have to find places to put that money to work. With more money looking for targets, competition for deals increases and valuations rise as a result.

Commonfund says it shares these concerns. "For example, within the buyouts arena, we have observed better pricing in the smaller end of the market and, as a result, our recent private equity portfolios have a distinct tilt toward small- and medium-sized funds that are focused on smaller companies," the asset manager noted.

Investors al......................

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