Outlook from Europe: A View on Private Equity from SuperInvestor 2016

12.7.2016

Outlook from Europe: A View on Private Equity from SuperInvestor 2016
By Jim Strang, Managing Director and Head of Europe

In the European private equity calendar, November generally means one thing: SuperInvestor Amsterdam, where industry participants descend on the Dutch capital for a four-day private markets convocation. At this year's conference, the almost 1,000 delegates left with some clear and consistent tones ringing in their ears.

First and foremost, it has been a good year for the private equity industry in Europe. Performance has been strong, and allocations to the private markets continue to edge higher. Fundraising has been robust, especially among the larger funds in the market; those over $2B. One feature of European PE that is distinct from that of the U.S. market is that the median fund size is smaller, which drives the bigger investors toward a smaller number of larger-sized funds. That's not to say, however, that smaller funds have suffered as a result; they, too, have seen generally supportive conditions this year.

Another key theme was the notion that liquidity is finally slowing down after five years of high levels for LPs. However, while lower than in prior years, liquidity is still available in the form of both exits and re-caps, primarily facilitated by the credit markets, which have remained highly liquid. One interesting rumor in this regard is the threat that European regulators might impose the kinds of restrictions on leverage levels that were recently introduced in the U.S.

Because the global environment is so uncertain at the moment, volatility was another hot topic amongst attendees. Since the last SuperReturn conference, both Brexit in the UK and the election of a surprising new president-elect in the U.S have occurred. With forthcoming elections in France, Holland and Germany, as well as a constitutional referendum in Italy, there was consensus that we haven’t seen the end of volatility. Most attendees seemed prepared to expect the unexpected. Foreign exchange volatility also is creating problems for LPs’ local currency returns - especially for U.S. LPs. The European industry’s base currency is predominantly the Euro; however, there also is significant exposure to the British Pound and the U.S. Dollar, making life for portfolio companies challenging as they try to deal with the translation and transaction swings.

Despite these challenges, the European private equity industry remains in robust health, and most delegates headed home in good spirits -  textbook example of "keep calm, and carry on."


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