Jessica Duong analyzes Europe’s phoenix-like revival as a private equity destination in Preqin’s April 2014 issue of ‘Private Equity Spotlight.’
From a region that faced notably negative investor sentiment last year, the continent has metamorphosed into one that is seeing ramped-up private equity activity and interest, says Duong, citing Preqin’s database of fundraising, deals and investor preferences.
As its macro-economic picture improves, Europe is fast laying to rest memories of the sovereign debt crisis of 2009.
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“Five years on, Europe’s economic picture has brightened, and in the private equity realm the effects of this are reflected in the marked shifts seen in investor confidence and the upward trends of European fundraising activity in recent years,” observes Duong.
Fund-raising picking up
Indeed, aggregate fundraising in Europe troughed in 2010 but has marched higher thereafter as shown below, with $112B being garnered in Europe-focused funds in 2013.
Europe’s impressive track record of returns
Europe-facing PE has generated far superior returns since 2004, according to the PreqIn Quarterly Index, which captures the return earned by investors on average in their private equity portfolios, based on the actual amount of money invested in private equity partnerships.
“As of 30 June 2013, this was recording an index return of 470.8, compared to 339.7 for Asia-focused funds and 223.7 for North America-focused funds,” says Duong, referring to the chart below.
Apart from Europe’s superior returns in the aggregate, its crisis-hit and straggler regions such as in the East and South offer challenging but rich returns.
“Following the sovereign debt crisis, opportunistic fund managers and investors have become eager to take advantage of the emergence of distressed debt, turnaround and special situation investment opportunities in the region,” observes Duong.
In many ways, Europe has benefited from being the odd-man-out, as investors look for opportunities away from emerging markets in currency turmoil, and investment competition in the Americas.
Cash waiting in the wings
Investor interest in Europe has manifested itself in a solid response to fund-raising drives – average fund size has nearly tripled from $301M in 2010 to $832M in 2014 YTD.
As a result, ‘dry powder’ (capital available for deployment) is now perched at a record level of $277B as shown below.
“Preqin’s deal data shows that 2013’s aggregate buyout deal value saw an 11% increase from the previous year, and for venture capital financing, the aggregate deal value rose by 43% from 2012 to 2013,” remarks Duong, corroborating the resurgence of European private equity.