While concern mounts that larger private equity houses are over leveraged, it seems that funding for companies at the smaller end of the scale is in good health.

While concern mounts that larger private equity houses are over leveraged, it seems that funding for companies at the smaller end of the scale is in good health.

The findings come from a survey of 350 private equity professionals. Sixty-seven per cent of respondents believe that leverage multiples are reaching dangerous and unsustainable levels in some deals, while 23 per cent believe this overreaching – by taking on excessive debt – has happened in many deals.

NBGI Private Equity’s Mark Owen suggests that the scale of leveraging among firms at the top end of the market is not being mimicked on smaller deals.

He says: ‘With large companies, banks feel the risk of default isn’t so great and feel more comfortable pushing the boat out on leverage multiples.

‘But at the sub–£50 million level, banks don’t feel such leverage multiples are applicable, and we would agree. That said, the banking market is certainly a lot more aggressive than it was.’

This is reinforced by the fact that 70 per cent of respondents focused on venture capital saying they expect performance to be better this year than last, and 77 per cent reporting returns were up year-on-year in 2006.

Other findings in the survey, conducted by Private Equity News, reveal that 40 per cent of private equity firms expect to raise larger funds than in 2006, and 75 per cent of respondents predict that hedge funds will be a more important source of capital than last year.