preqin special report: european private equity · 2017. 10. 5. · managers, funds of funds,...

Content Includes

European Fundraising

We assess the experience

of Europe-focused funds in

market in the past year and

historically.

Current Fundraising

Conditions

How has sustained economic

volatility impacted the

present fundraising market?

Distressed Opportunities

Analysis of funds targeting

the distressed opportunities

available in Europe.

European Performance

A rundown of the key

performance metrics for

Europe-focused private

equity funds.

Investors

We identify the key investors

in European private equity

to watch, and assess LP

attitudes following the

eurozone crisis.

Preqin Special Report: European Private EquityMarch 2012

Foreword................................................................................... p. 3

European Fundraising in 2011................................................ p. 4

Historical European Fundraising............................................. p. 5

European Fundraising Outlook - 2012................................... p. 6

Distressed Opportunities.......................................................... p. 7

European Investors................................................................... p. 8

Investors to Watch.................................................................... p. 9

Investors’ Attitudes Following the Eurozone Crisis............... p. 10

Europe-Based Buyout Deal Market....................................... p. 11

Performance of Europe-Focused Funds.............................. p. 12

Contents

Editor:

Alex Jones

Sub-Editor:

Sam Meakin

Preqin:

New York: +1 212 350 0100London: +44 (0)20 7645 8888

Singapore: +65 6408 0122

Email: [email protected]: www.preqin.com

Preqin Special Report: European Private Equity draws exclusively on the following sources of information:

• Investor Intelligence - The most comprehensive database of current and potential institutional investors in private equity, featuring in-depth profiles of more than 3,850 actively investing LPs, and over 1,000 that have put their investments on hold, including investment preferences, future plans, key contact details and more.

• Funds in Market - This constantly updated resource includes details for all funds of all types being raised worldwide, with key information on target sizes, interim closes, placement agents, lawyers, investors.

• Fund Manager Profiles - With detailed profiles for over 6,250 GPs, including key strategic and investment preferences, Fund Manager Profiles is the foremost source of data on private equity fund managers worldwide.

• Deals Analyst - The most extensive, detailed source of information on private equity-backed buyout deals in the world. This comprehensive product contains in-depth data for over 24,000 buyout deals across the globe, including information on deal value, buyers, sellers, debt financing providers, financial and legal advisors, exit details and more.

• Performance Analyst - The industry’s most extensive and transparent source of net-to-LP private equity fund performance, with full metrics for over 5,700 named vehicles. In terms of capital raised, Performance Analyst contains data for over 70% of all funds raised historically.

Data Source

http://www.preqin.com/private_equity_investors.aspx?itemID=13&scen=S1_II/1.go.aspx?rid=158http://www.preqin.com/item/private-equity-funds-in-market/1/12/go.aspx?rid=158http://www.preqin.com/item/private-equity-fund-manager-profiles/1/4/go.aspx?rid=158http://www.preqin.com/item/private-equity-buyout-deals/1/2464/go.aspx?rid=158http://www.preqin.com/item/private-equity-performance-analyst/1/11/go.aspx?rid=158

3

Preqin Special Report: European Private Equity

© 2012 Preqin Ltd. / www.preqin.com

Private equity investment in Europe has historically been secure in its position as the second largest market in the industry, next to the traditional home of the asset class – North America. In recent years, however, Europe’s position as the second most attractive destination of choice for private equity investor capital has been under threat due to the rapid growth of the industry in Asia-Pacific and other so called ‘emerging markets’. Across 2011, however, Europe has featured prominently in private equity professionals’ and investors’ thoughts. To some, the region represents a toxic mix of uncertainty and volatility, while to others it shines as an attractive opportunity for strategic and well-thought-out investment.

The last year has proven to be particularly significant for private equity as a whole for numerous reasons, not least due to the ongoing eurozone sovereign debt crisis, which saw the largely positive and encouraging fundraising conditions seen at the start of the year fall away as renewed fears of financial crisis and recession took grip. While the long-term results of the current economic difficulties facing Europe are impossible to predict, the current effects on European private equity are vital to understand. Consequently, this report aims to analyze Europe-focused private equity from the perspectives of current fundraising conditions, investor attitudes, and the latest fund performance, framing this important part of the industry in its historical context.

In order to tap into the current landscape of European private equity and produce this special report, we conducted interviews with over 100 institutional investors from around the world during December 2011 regarding their attitudes towards private equity in light of recent events in Europe. The sample was selected from Preqin’s Investor Intelligence database of over 4,800 LPs, the most comprehensive and accurate source of information on investors in private equity funds available today.

Europe-focused private equity is truly a global industry, with managers targeting the region for investment located in 68 countries around the world. Preqin, as a global firm with offices in New York, London and Singapore, is ideally placed to track wider trends. Our worldwide coverage is provided by teams of multi-lingual analysts, allowing us to remain in daily contact with private equity fund managers, funds of funds, institutional investors, consultants and other service providers. We believe that by speaking to industry players directly, we are able to assess the latest trends and provide our clients with valuable, pertinent and comprehensive analysis and data.

We hope you find the Preqin Special Report: European Private Equity a useful and interesting guide and, as always, we welcome any feedback and suggestions you may have for future editions. Should you wish to have any further information on the products and services offered by Preqin, please do not hesitate to contact any of our offices.

A JonesAlex JonesEditor

Foreword

4



Global private equity fundraising experienced a strong start to 2011 only to falter in Q3 once the effects of the eurozone crisis took hold; however for Europe-focused private equity funds, the level of capital garnered by funds closed increased throughout the year. Despite economic volatility and the sovereign debt crisis, Europe proved to be a popular choice for investors in the asset class.

The Impact of the Eurozone CrisisMoving into 2011 poor fundraising conditions prevailed, with low levels of capital being raised across the private equity industry. Despite this, at the beginning of the year there was a sense that the prevailing winds were changing, with wider financial markets stabilizing to a degree. With respect to deals, H1 2011 saw a 49% increase in the value of private equity exits completed compared to H2 2010, with $209bn realized from 328 deals in the first half of 2011, compared to $140bn generated by 377 exits throughout the latter half of 2010. This encouraged a more positive investor outlook and freed up capital to make new investments.

As a result, the first half of the year showed signs of the global fundraising market recovering. While there were still large numbers of vehicles on the road seeking capital, funds were closing in increasing numbers and the logjam of vehicles in market looked to be easing. Globally, 180 vehicles closed in Q1 2011 and this increased to 198 funds in the second quarter, as shown in Fig. 1. Significantly, the levels of capital that the industry was attracting also began to increase in the early part of 2011, with an aggregate $87.4bn raised by funds that closed worldwide in Q2, the highest total since Q2 2009.

Mounting fears regarding eurozone debt levels and the associated financial market volatility that followed in the second half of the year, however, did much to erase the positive fundraising start. In Q3 136 funds closed on a total of $53.1bn. While the market recovered partially in the last quarter of 2011, with 168 vehicles closing on an aggregate $68.8bn, both the number of funds finalizing their fundraising and the total capital commitments gained remained below the strong start seen in H1.

European-Focused Fundraising in 2011European-focused fundraising bucked the global trend of a poor finish to 2011 by raising more capital in Q4 than in Q1; however overall amount of capital raised remains depressed. As shown in Fig. 2, the aggregate capital raised by Europe-focused vehicles closed in Q1 was actually lower than that by Asia and Rest of World funds. At the beginning of 2011 a total of 41 vehicles closed for an aggregate $11bn (€8bn), but in Q4 the amount of capital increased to nearly double total capital commitments, with 39 funds closing on an aggregate $21.5bn (€15.9).

Of Europe-focused funds closed in 2011, 21% were venture funds, buyout and private real estate vehicles each accounted for 16%, while 14% were private equity funds of funds. Six percent of Europe-focused private equity vehicles that reached final close in the year were distressed private equity funds.

Europe was the only region for which capital commitments to funds closed in the last quarter of 2011 were higher than the first quarter. While some investors shied away from committing to private equity funds that intended to invest in Europe due to the perceived risk, many LPs clearly felt that they had identified fund managers that have the requisite talent to negotiate the difficult economic conditions, take advantage of the current landscape and generate attractive returns.

European Fundraising in 2011

Fig. 1: Breakdown of Global Private Equity Fundraising,

Q1 2011 - Q4 2011

180

198

136

168

0

50

100

150

200

250

Q1 2011 Q2 2011 Q3 2011 Q4 2011

No. of Funds

Aggregate Capital Raised ($bn)

Source: Preqin Funds in Market Online Service

Fig. 2: Breakdown of Aggregate Capital Commitments by Fund

Geographic Focus, Q1 2011 - Q4 2011

0

10

20

30

40

50

60

Q1 2011 Q2 2011 Q3 2011 Q4 2011

North America

Europe

Asia and Rest of World


5



Historically, Europe-focused fundraising has lagged behind that of North America-focused funds. As the traditional base of private equity, North America – and particularly the US – has attracted the lion share of capital over the years, with the vast majority of fund managers based there and the bulk of investment focused in the region.

As highlighted in Fig. 3, until recently Europe-focused funds have been the second most popular destination for investor capital, with North America substantially in front and Asia and Rest of World-focused vehicles trailing behind in terms of aggregate contributions. Despite this, however, since the financial crisis we have seen a marked shift in fundraising markets, with the level of capital flowing into Asia and Rest of World-focused funds surpassing for the first time that contributed to vehicles for investment in Europe in 2010. This trend has continued in 2011, with Europe-focused vehicles garnering $62.4bn in contrast to Asia and Rest of World’s $63.5bn.

The financial crisis negatively affected the private equity industry as a whole, with fundraising across all major markets down significantly both in terms of the number of funds successfully closed each year and levels of capital raised, and Europe-focused fundraising has been no exception to this trend. As shown in Fig. 4, while there have been small periods of improvement for European fundraising, 2008-2010 saw aggregate capital contributions fall from $167.8bn to just $58.9bn. The amount of capital raised increased slightly in 2011; however the number of funds that closed declined from 182 in 2010 to 161 last year – a far cry from the all-time peak of 414 funds that reached a final close in 2007.

In contrast, fundraising for funds focused on investment in Asia and Rest of World has proven to be much more resilient to the effects of the crisis. While the number of funds closed and aggregate capital raised are still below the figures seen during the ‘boom period’, the amount of capital raised by Asia and Rest of World-focused funds has now surpassed the amounts seen in 2005. The private equity industry in the likes of Asia, South America and India has expanded rapidly over the past decade alongside wider financial growth and we have seen a corresponding expansion of the number of sophisticated institutional investors based in these regions. This, coupled with the fact that many Western LPs have become more open to investment in emerging markets at the expense of allocations to funds targeting the traditional markets, has narrowed the gap between fundraising levels in Europe and Asia and Rest of World.

Since the financial crisis hit the private equity industry, the fundraising market across all regions has been very crowded. Poor wider economic conditions led to sustained periods of unattractive deal and exit opportunities, which in turn

resulted in a dearth of distributions back to investors and a decline in commitments to funds. As a consequence, over recent years it has taken progressively longer for many funds to reach final close. The average time spent in market for Europe-focused vehicles attempting to attract capital has increased year on year, from 12.4 months for funds closed in 2006 to 19.5 months for funds closed in 2011.

To compound the crowded conditions seen from 2009 onwards, any brief window of economic stability - such as at the end of 2010 and beginning of 2011 - has led to a flurry of exit and deals made. In such periods, many GPs that were sat on the sidelines have come to market with new offerings, adding to the many already struggling funds. This has created a logjam effect, with record numbers of funds on the road – culminating in the over 1,800 vehicles in market seen during February 2012.

Historical European Fundraising

Year of Final Close

Ag

gre

ga

te C

ap

ital R

aise

d (

$bn

)

Fig. 3: Breakdown of Aggregate Capital Commitments by Fund

Geographic Focus, 2000 - 2011

0

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

North America

Europe



Year of Final Close

Fig. 4: Breakdown of Europe-Focused Private Equity Fundraising,

2000 - 2012 YTD (As at 23rd February 2012)

222 220196

165

196

270

383

414

378

231

182161

16

0

50

100

150

200

250

300

350

400

450

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD

No. of Funds

Aggregate Capital Raised ($bn)


6



At present there are a record 1,885 private equity funds of all types on the road globally, seeking an aggregate $777.5bn in investor capital. Due to the poor fundraising conditions seen in the aftermath of the financial crisis, in 2012 there is effectively three years’ stock of vehicles in market, resulting in an unprecedentedly crowded landscape. Some European GPs, such as Duke Street, have shelved fundraising plans and now operate on a deal-by-deal basis; however, investor sentiment remains strong and it is possible for well-positioned funds to be successful on the road. For example, UK-based BC Partners recently closed its latest Europe-focused buyout vehicle, BC European Cap IX, above its €6bn target by reaching its €6.5bn hard-cap in February 2012.

Breakdown of Funds Currently in MarketAs shown in Fig. 5, of the record number of vehicles currently seeking capital, 23% (436) are focused on investment in Europe, while 44% (832) are North America-focused and the remaining 32% (617) are geared towards investment in Asia and Rest of World. Of the three main geographic regions, Europe-focused vehicles are currently seeking $192.3bn (€141.2bn), representing the smallest proportion of the aggregate capital being sought by the industry at approximately one-quarter of the total.

Of the European-focused vehicles currently in market, over 90% are managed by GPs based in the region, representing 83% of the total capital being sought by such funds. Seven percent are managed by firms headquartered in North America, representing 12.5% of the aggregate capital target of Europe-focused funds, while the remaining 3% are managed by Asia and Rest of World-based managers, representing 4.5% of the aggregate capital being sought by such vehicles.

Mirroring trends seen across the industry, the most numerous type of Europe-focused fund currently in market is real estate. Such vehicles have had a particularly difficult time in attracting capital from investors, with just 61 Europe-focused private real estate funds reaching final close in the last two years, accounting for an aggregate $16.1bn in capital. As shown in Fig. 6, the next most common fund type in market is venture; however these vehicles typically have much smaller target sizes than funds pursuing other strategies, meaning that 81 funds are targeting just $8.5bn (€6.4bn). There are currently 61 Europe-focused infrastructure funds in market targeting an aggregate $40.8bn, while there are 57 buyout vehicles seeking a total of $54.2bn. Due to the impact of the eurozone crisis, there are now a great deal more distressed opportunities for private equity fund managers to take advantage of. Unsurprisingly this has led to 15 Europe-focused distressed private equity funds (constituting those pursuing distressed debt, turnaround and special situations strategies) in market, targeting an aggregate $10.3bn (€7.6bn), representing over 5% of the total capital being sought by all European funds.

Outlook for 2012While conditions remain difficult, some investors clearly feel that there are opportunities to be had in investing in private equity in Europe. At present, 191 of the funds in market that are targeting the region have held an interim close, raising an aggregate $38.6bn (€28.3bn) towards their goals. This is a promising sign that fundraising levels may improve throughout the coming year, as investors look to tap into the potential returns to be had from successfully navigating the economic circumstances resulting from the eurozone crisis. As we will see later in this report, there remains substantial investor interest in investment in Europe; however there will not be enough capital to satisfy the demands of every manager presently on the road. As a result, it is vital for GPs looking to market their fund to ensure that they have strong marketing/branding skills, a clear, well-thought-out mandate and deep knowledge regarding their prospective investor base.

European Fundraising Outlook - 2012

Fig. 6: Breakdown of Europe-Focused Funds Currently in Market

by Fund Type

104

81

6157

41

31

15 14

39.9

8.5

40.8

54.2

9.2 7.4 10.3 6.7

0

20

40

60

80

100

120

Re

al E

sta

te

Ve

ntu

re

Infr

ast

ruc

ture

Buyo

ut

Priv

ate

Eq

uity

Fu

nd

of F

un

ds

Gro

wth

Dis

tre

sse

d P

E

Me

zza

nin

e

No. of Funds

Aggregate Capital Target ($bn)


Primary Geographic Focus

Fig. 5: Breakdown of Funds Currently in Market

by Main Geographic Focus

436

617

832

192.3 203.8

381.4

0

100

200

300

400

500

600

700

800

900

Europe Asia and Rest of World

North America

No. of Funds

Aggregate Capital Target ($bn)


7



Since the pioneering distressed private equity funds launched in the 1980s, vehicles investing in securities of companies facing financial distress or bankruptcy have made a relatively small, but vital, contribution to the private equity marketplace. After the constriction of capital markets and economic crisis that occurred following the collapse of Lehman Brothers in 2008, we have witnessed increasing demand for such vehicles from investors looking to tap into the resulting opportunities.

Historical Distressed Private Equity FundraisingFrom 2003 to March 2012, a total of 288 distressed private equity funds have closed worldwide, raising over $219bn in capital from investors. Over this same period, Europe-focused funds accounted for 52 of these vehicles, representing $25.4bn of the total capital raised. For funds globally, the peak of fundraising hit during the ‘boom period’ of 2007 and 2008, when 44 and 40 distressed funds raised $51.3bn and $54.2bn respectively. While representing just a small proportion of global fundraising, Europe-focused distressed private equity funds have grown in importance and for such vehicles the peak in fundraising was reached in 2011, when 10 vehicles closed on an aggregate $7.7bn (€5.7bn). This is unsurprising given the fact that the sovereign debt crisis in the region has created a plethora of opportunities for investment in distressed private companies. As shown in Fig. 7, the number of funds closing and the level of capital contributions into such funds has increased year-on-year since 2009.

Current Distressed Private Equity Fundraising ConditionsAs of March 2012, there are 66 distressed private equity funds in market, seeking $50.1bn, and of these there are 15 Europe-focused vehicles that have raised an aggregate $3.5bn (€2.6bn) from investors through interim closes. While number of European funds on the road is lower in comparison to North America- and Asia and Rest of World-focused funds, their aggregate target is the higher of all three regions ($10.3bn). This highlights the fact that many fund managers intending to invest in distressed

assets in Europe believe that there are abundant opportunities to take advantage of in the region, in part due to the financial conditions created by the eurozone crisis.

LP Sentiment towards Distressed Private EquityIn a September 2011 study of LP attitudes towards distressed private equity investment, undertaken at a time of particular concern over the sovereign debt crisis, a prominent 65% of investors in distressed funds named Europe as a preferential focus. It is interesting to note that several LPs we interviewed at this time were looking to move away from US-focused distressed private equity investments towards opportunities in Europe. One large US public pension fund noted: “[There are] more distressed companies in Europe because of gloom hanging over the EU... [there are] better opportunities to invest there.” Fig. 8 shows the largest Europe-focused distressed private equity funds still in market, looking to take advantage of this increased demand.

Distressed Opportunities

* Comprises: distressed debt, turnaround and special situations funds

Fig. 7: Annual Global and Europe-Focused Distressed Private

Equity* Fundraising by Year of Final Close, 2003 - 2011

2 2 27 7 5 6

9 10

1924

31

33

44

40

28

37

28

0

10

20

30

40

50

60

2003 2004 2005 2006 2007 2008 2009 2010 2011

No. of Non-Europe-Focused Funds ($bn)

No. of Europe-Focused Funds

Aggregate Capital Raised by Non-Europe-Focused Funds ($bn)

Aggregate Capital Raised by Europe-Focused Funds ($bn)


Fig. 8: Top Five Europe-Focused Distressed Private Equity Funds Currently in Market (As at 23rd February 2012)

Fund Vintage Manager Type Target Size (mn) Latest Interim Close Fund Status Location Focus Manager Country

Apollo European Principal Finance Fund II 2012

Apollo Global Management

Distressed Debt 2,500 EUR 10-Feb-12 First Close Europe US

Avenue Europe Special Situations Fund II 2011

Avenue Capital Group

Distressed Debt 1,500 EUR 22-Dec-11 Fourth Close West Europe US

Merchant Asset Partners 2010 Merchant Asset Partners Turnaround 500 GBP - Raising UK UK

OHA European Strategic Credit Fund 2011 Oak Hill Advisors

Distressed Debt 750 USD 10-Feb-12 Fifth Close West Europe US

Strategic Value Global Opportunities II 2011

Strategic Value Partners

Distressed Debt 750 USD 31-Jan-11 First Close

North America, Europe

US


8



At present, Preqin’s Investor Intelligence product tracks 1,165 investors based in Europe, representing 31% of the global private equity investor universe. As shown in Fig. 9, private sector pension funds represent 18% of the total number, with public pension funds accounting for 13%, and funds of funds 12%.

In terms of allocations to private equity, 34% of European investors allocate €50-249mn, while a notable 21% allocate under €25mn, as shown in Fig. 10. Of the Europe-based investor universe just 6% invest €2.5bn or more in the asset class. The majority of these larger allocators tend to be fund of funds managers; however there are other notable investors based in the region. The details of five prominent Europe-based LPs can be seen in Fig. 11.

Investment PreferencesIn December 2011 Preqin’s study of investor sentiment revealed that a significant 49% of all Europe-based institutional investors intend to seek allocations to small to mid-market buyout funds in 2012, with some 45% believing that this is the area of the market that is currently presenting attractive opportunities. Nineteen percent of European LPs advised that they intend to target the distressed private equity space and 27% believe that this area is attractive, which is unsurprising given the growing number of opportunities available for distressed investment. While Europe-based LPs have been historically characterized as conservative and typically more adverse to first-time fund managers and emerging market investment, they are also highly experienced and sophisticated investors. In recent years, we have seen a growing number become more open to the perceived higher risk / higher return opportunities presented by emerging managers. At present, 46% of Europe-based LPs are interested in, or are considering, investment in first-time private equity funds, while 15% are open to investment with spin-off teams. The remaining 29% will not consider emerging managers.

European LPs

Fig. 11: Five Notable Europe-Based Investors in Private Equity

Investor Type Location AUM (bn) Current Allocation to PE (%) First-Time Funds Typical Investment Size (mn)

AlpInvest Partners Private Equity Fund of Funds Manager Netherlands EUR 40.2 100 Yes EUR 10-250

Pantheon Ventures Private Equity Fund of Funds Manager UK USD 25 100 Yes USD 10-20

APG - All Pensions Group Asset Manager Netherlands EUR 274 5.5 Yes -

Pictet & Cie Bank Switzerland USD 350 4 No USD 5-150

Universities Superannuation Scheme Public Pension Fund UK GBP 32.6 9 Yes GBP 50-250

Private Equity Allocation

Pro

po

rtio

n o

f In

vest

ors

Fig. 10: Make-up of Europe-Based LPs by Private Equity

Allocation Size

21%

10%

34%

18%

11%

3% 3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

€0-2

4mn

€25-

49m

n

€50-

249m

n

€250

-999

mn

€1,0

00-2

,499

mn

€2,5

00-4

,999

mn

€5,0

00+

mn

Source: Preqin Investor Intelligence Online Service


Fig. 9: Make-up of Europe-Based LPs by Investor Type

18%

13%

12%

9%9%

7%

7%

6%

6%4%

9%

Private Sector Pension Funds

Public Pension Funds

Fund of Funds Managers

Insurance Companies

Banks & Investment Banks

Asset Managers

Family Offices

Investment Companies

Foundations

Corporate Investors

Other


9



Investors to Watch

Domestic Europe-Focused Investors to Watch

Investor Name Type Location AUM Current Allocation (% of AUM)Target Allocation

(% of AUM) 2012 Investment Plans

SEB Pension Private Sector Pension Fund Sweden SEK 15.5bn 10% 10%

SEB Pension anticipates that it will make new fund commitments in H1 2012, and is planning to increase the number of GP relationships it has within its private equity portfolio over the coming year. The pension fund invests in a variety of fund types including buyout, venture and distressed debt vehicles that are predominantly focused on European markets.

Talanx Asset Management Asset Manager Germany EUR 85bn 1.5% n/a

Talanx Asset Management plans to commit to between eight and ten new funds over the course of 2012, allocating €10-30mn to each opportunity. The asset manager continues to invest on a global scale, with a particular focus on vehicles targeting Europe and North America, while also looking to increase its long-term allocation to emerging markets.

Blue Sky Group Asset Manager Netherlands EUR 13bn n/a n/a

Blue Sky Group is looking to re-enter the asset class in the immediate future, having ceased investing in the mid-2000s. It will be looking to form new manager relationships in 2012 as it looks to build its exposure to the asset class. It is looking to invest in funds of funds based in Europe and the US, and will also consider opportunities in emerging markets.

Nordea Bank Bank Denmark EUR 125.2bn 0.2% n/a

Nordea Bank is looking to increase its level of exposure to the private equity asset class over the next 12 months, and could commit to up to five new vehicles. The bank is primarily targeting Northern Europe-focused buyout funds. It will predominantly be committing to re-ups with its existing fund managers, but will also consider investment opportunities with managers outside of its existing portfolio.

PPM Managers Asset Manager UK GBP 1.1bn 100% n/a

PPM Managers expects to commit to between four and five new private equity funds in the next 12 months. It believes that small to mid-market buyout funds are presenting the best opportunities and will be focusing predominantly on these fund types that target Europe over the next 12 months. In the longer term, it plans to increase its level of exposure to the asset class. It typically commits £20-30mn per fund.

Foreign Europe-Focused Investors to Watch

Investor Name Type Location AUM Current Allocation (% of AUM)Target Allocation

(% of AUM) 2012 Investment Plans

Development Bank of Japan Bank Japan JPY 14,830tn 0.6% n/a

Development Bank of Japan is looking to gain greater exposure to overseas funds in 2012, seeking to invest in funds focused on Europe, North America, and regions in Asia such as India and China, as well as continuing to invest in Japan-focused funds. Over the next year, DBJ plans to commit $200mn (approximately JPY 15.2bn) to five to six private equity funds. The bank has an interest in a wide variety of fund types.

NTUC Income Insurance Co-operative

Insurance Company Singapore SGD 26.4bn n/a n/a

NTUC Income Insurance Co-operative has set aside SGD 150-250mn to invest in five to ten new private equity funds over the next 12 months. The insurance company targets a range of fund types including buyout, mezzanine and growth funds. It invests primarily in Europe, North America and Asia (in particular Greater China).

Ohio Public Employees' Retirement System

Public Pension Fund US USD 76bn 8.8% 10%

Ohio Public Employees' Retirement System (OPERS) has set aside $2bn to commit across 12 to 15 new private equity funds over the next 12 months. It has a preference for buyout, growth, venture, mezzanine and secondaries funds. It invests globally, including Europe, North America and emerging markets.

San Francisco City & County Employees' Retirement System

Public Pension Fund US USD 16bn 12.5% 16%

San Francisco City & County Employees' Retirement System has increased its target allocation to private equity from 14% to 16% of its total assets. Following in line with this increase, it has set aside $300-400mn to invest across 12 to 16 new private equity funds during 2012. Amongst these investments, it will look to commit to Europe-based distressed debt vehicles.

SunSuper Superannuation Scheme Australia AUD 18bn 6.5% 7%

In 2012, SunSuper plans to commit AUD 300-400mn to between six and eight new funds. SunSuper continues to focus on investing on a global scale, with a particular interest in vehicles targeting Europe, North America and emerging markets, including Asia. It primarily invests in distressed private equity funds, but also has some exposure to mid-market US buyout funds.



10



During the latter half of 2011 growing fears regarding the sustainability of the eurozone and the growing burden placed upon some of its member states due to sovereign debt levels led to a period of sustained financial market volatility across the world. This affected the private equity industry in many ways, chiefly through the constriction of exit and deal markets and the corresponding lowering of capital commitments to funds; however what do LPs feel about investment in the asset class following this crisis?

During our December 2011 study of global investor sentiment, we asked investors how recent volatility in wider financial markets, and in particular the sovereign debt crisis in Europe, has impacted on their views of private equity. As Fig. 12 shows, almost two-thirds (61%) of investors we spoke to for this study have not changed their attitude toward private equity investment, and a fifth of investors feel more positive about the opportunities private equity has to offer in light of volatility in wider markets.

Many investors have shown concerns over the impact of volatility in wider markets on their private equity portfolios, but the vast majority are sticking with the program. One Thailand-based investor we spoke to commented: “The financial climate doesn’t make us positive or negative, just more cautious when investing,” and a pension fund based in Malaysia stated: “While the increased financial volatility has slightly impacted our exit schedules, it has not dampened our enthusiasm for private equity. Overall we remain very positive about the asset class.”

A number of investors feel that private equity is faring well in comparison to other asset classes. One investor, based in Australia, stated: “Public markets are more volatile and risky in times like this, so private equity becomes more attractive.” Many investors shared this view, including a Netherlands-based pension fund, which commented: “The volatility is affecting private equity less than other asset classes,” and a US endowment, which noted: “[There is] more value in private equity after the fall in public markets.” Several LPs also noted that wider market volatility is creating new opportunities within private equity, in particular in the distressed and secondaries sectors.

Some investors (19%) feel more negative towards the private equity asset class as a result of recent market volatility, particularly within the eurozone. Some are concerned that public market losses are increasing the risk of the denominator effect, while others have concerns about maturing funds within their portfolios being able to realize their investments.

LPs’ Attitudes Following the Eurozone Crisis

Fig. 12: Impact of Recent Volatility in Wider Financial Markets on

LP Attitudes towards Private Equity

20%

19%61%

More Positive towards Private Equity

More Negative towards Private Equity

Opinion of Private Equity Has Not Changed

Source: 2012 Preqin Global Private Equity Report

11



Private equity-backed buyout transactions based in Europe comprise over a third (36%) of all such deals worldwide, accounting for 34% of aggregate deal value. As shown in Fig. 13, the number and aggregate value of European deals declined significantly as the financial crisis took hold; however deal flow has since rebounded in subsequent years. From 2009 to 2011 the number and aggregate value of such transactions has increased year-on-year, hitting a post-crisis peak in 2011 of 928 deals for an aggregate $96.3bn. This mirrors global trends that saw 2011 deal activity reach the highest levels since the private equity ‘boom period’.

Many fund managers worldwide delayed deploying their capital reserves in the immediate aftermath of the collapse of Lehman Brothers, as conditions were unfavourable due to depressed financial markets, anti-leveraging sentiment and the lack of easily obtainable debt financing. As conditions subsequently improved, however, there have been several windows of opportunities for deal-making, which has led to a rush of GPs deploying some of the substantial levels of dry powder that have been available to them. Since 2008, capital held in reserve for Europe-focused funds has declined from $269.7bn to $232.7bn as managers have put their funds to work.

Buyout Deal TrendsFig. 14 shows the breakdown of Europe-based private equity-backed buyout deals in 2011 by transaction type, with leveraged buyouts (LBOs) accounting for the largest proportion of the number of deals completed during the year. Unsurprisingly, these heavily leveraged transactions represented by far the largest share of the aggregate deal value, accounting for 76% of the total.

Add-on deals, where a portfolio company acquires bolt-on purchases in the same industry, have become an increasingly important tool for fund managers looking to consolidate their portfolio in times of sustained volatility. Add-ons currently represent over one-third of all private equity-backed deals, up from around one-fifth of all deals pre-financial crisis. In 2008 there were 467 add-ons worth an aggregate $3.4bn, rising to 963 completed in 2011 for a total of $28.4bn. In Europe during 2011, such transactions accounted for 27% of all deals completed during the year, representing 6% of the aggregate value. Given current wider market conditions, many fund managers have used add-ons to help protect their portfolio against the negative impact of increased volatility and financial stress.

Geographic Focus of European DealsIn terms of geographic location, the three largest economies in Europe – Germany, France and the UK – have dominated the number of private equity-backed buyout deals, as shown in Fig. 15. The UK is one of most sophisticated private equity markets

and is home to numerous private equity fund managers, and as a result is by far the most popular deal destination with over 1,600 transactions completed in the country since 2006. This is over twice the number of second placed country - France.

Europe-Based Buyout Deal Market

No

. of

De

als

Fig. 13: Europe-Based Private Equity-Backed Buyout Deals,

2006 - 2012 (As at 24th February 2012)

Ag

gre

ga

te D

ea

l Va

lue

($bn

)

958

1,079

889

509

855

928

123

0

20

40

60

80

100

120

140

160

180

200

0

200

400

600

800

1000

1200

2006 2007 2008 2009 2010 2011 2012 YTD

No. of Deals Aggregate Deal Value ($bn)

Source: Preqin Deals Analyst Online Service

Pro

po

rtio

n o

f To

tal

Fig. 14: Breakdown of European Private Equity-Backed Buyout

Deals in 2011 by Transaction Type

55%

27%

12%

2% 1% 1%1% 0.8% 0.2%

76%

6% 5%8%

0.5%3% 0.7% 0.5% 0.03%

0%

10%

20%

30%

40%

50%

60%

70%

80%

LBO

Ad

d-o

n

Gro

wth

Ca

pita

l

Pu

blic

to

Priv

ate

Me

rge

r

PIP

E

Re

stru

ctu

ring

Re

ca

pita

liza

tion

Turn

aro

un

d

No. of Deals

Aggregate Deal Value ($bn)


Country No. of Deals

UK 1,686

France 785

Germany 583

Sweden 284

Italy 276

Fig. 15: Top Five European Countries by Number of Private Equity-

Backed Buyout Deals, 2006 - 2012 YTD (As at 24th February 2012)


12



Performance Analyst, Preqin’s extensive and transparent source of net-to-LP private equity fund performance, currently holds fund-level performance data for over 1,180 European private equity funds, ranging in vintage from 1984 to 2011.

Fig. 16 shows the median called-up, distributed and remaining value ratios by vintage year for Europe-focused funds. Vehicles of vintage years between 2000 and 2001 have a median called-up figure of over 90% of their committed capital and have distributed back between 1.1x and 1.3x investors’ capital contributions. Funds of 2000 to 2006 and 2009 to 2010 vintages are showing a total value to paid-in capital (TVPI) of over 100%, while 2006, 2007 and 2008 have TVPIs of 96.6%, 95.6% and 97% respectively. For later vintage funds, however, this could yet change, as these funds are still early in their investment cycles.

The median net IRR and quartile boundaries by vintage year of Europe-focused funds are demonstrated in Fig. 17. Median IRRs have remained in positive territory for the entire sample, with the highest median return of 16.5% being achieved by 2002 vintage vehicles. The bottom quartile boundary remains in the black for all vintage years prior to 2005, before dropping into single-digit negatives for vintages 2006 to 2009. The difference between the top and bottom quartile boundaries is significant across all vintage years, demonstrating the importance of investors’ fund selection. The largest difference is seen for funds of 2009 vintage, with a gap of 28.7 percentage points.

From vintage years 2000 to 2004, Europe-focused funds show higher median net IRRs than their US counterparts, before being overtaken from 2005 to 2009, as shown in Fig. 18. Until vintage 2009, the median Europe-focused fund has performed below the median Asia and Rest of World-focused fund. This analysis is conducted using performance data for 3,600 private equity funds with vintages between 2000 and 2009, including 2,307 US-focused, 829 Europe-focused, and 464 Asia and Rest of World-focused funds.

Top Performing Europe-Focused FundsBy examining all funds with a focus on investment in Europe that have a vintage year of 2009 or older and have invested at least 50% of their committed capital, it is possible to ascertain the top performing European funds. Using IRR as the key measure, the 1997 vintage Swedestart II, managed by CapMan Capital Management, is top, with an IRR of 168.5%. Permira’s vintage 1997 Permira Europe I buyout fund is second, with an IRR of 84%. Next on the list is the more recent, vintage 2004 Herkules Private Equity Fund I, a 2004 vintage buyout fund managed by Norway-based Herkules Capital, which has an IRR standing at 80.4%.

Performance of Europe-Focused Funds

Vintage Year

Fig. 18: Median Net IRRs by Primary Geographic Focus and

Vintage Year

0%

5%

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

US

Europe


Vintage Year

Fig. 17: Europe-Focused Funds - Median Net IRRs and Quartile

Boundaries by Vintage Year

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Top Quartile IRR Boundary

Median IRR

Bottom Quartile IRR Boundary

Source: Preqin Performance Analyst Online Service


Vintage Year

Fig. 16: Europe-Focused Funds - Median Called-Up, Distributed

and Remaining Value Ratios by Vintage Year

0%

20%

40%

60%

80%

100%

120%

140%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Distributed to Paid-In Capital

Remaining Value to Paid-In Capital

Called-Up to Committed Capital


If you want any further information, or would like

to apply for a demo of our products please contact

us:

New York:

One Grand Central Place60 E 42nd Street

Suite 2544New YorkNY 10165

Tel: +1 212 350 0100Fax: +1 440 445 9595

London:

Equitable House47 King William Street

LondonEC4R 9AF

Tel: +44 (0)20 7645 8888Fax: +44 (0)87 0330 5892

Singapore:

Asia Square Tower 1 #07-04

8 Marina View Singapore 018960

Tel: +65 6407 1011Fax: +65 6407 1001

Email: [email protected]: www.preqin.com

About Preqin

Preqin private equity provides information products and services to private equity and venture capital firms, funds of funds, investors, placement agents, law firms, investment banks and advisors across the following main areas:

• Buyout Deals

• Fund Performance

• Fundraising

• Investor Profiles

• Fund Terms

• Fund Manager Profiles

• Employment and Compensation

Our customers can access this market intelligence in three different ways:

• Hard copy publications

• Online database services

• Tailored data downloads

Preqin regularly releases research and information on fundraising and all other aspects of the private equity industry as both research reports, and as part of our monthly Spotlight newsletter. To register to receive more research and analysis, please visit www.preqin.com/research

If you have any comments on this report, please contact: [email protected]


Preqin Online ServicesOrder Form

Payment Details:

Credit Card

Visa

Amex Mastercard

Cheque enclosed (please make cheque payable to ‘Preqin’)

Please invoice me

Card Number:

Security Code:

Name on Card:

Expiration Date:

American Express, four digit code printed on the front of the card.

Visa and Mastercard, last three digits printed on the signature strip.

Premium Licence Details:

Multi-User Names:

Signature: Date:

I have read the terms and conditions and agree to abide by them:

Term of subscription for online services is twelve months from the date of this Subscription Form, during which time Preqin Ltd. will supply the service as listed above, and the Customer will pay the subscription fee and comply with all other provisions of the Terms and Conditions listed on Preqin’s website and also the Subscription Form, collectively the “Agreement”. Upon completion of the initial and subsequent twelve month subscription periods, the subscription will be renewed for a further period of twelve months at the then current subscription price, unless terminated prior to renewal by the Client. Preqin undertakes to give the Client notification of each impending renewal at least 30 days prior to each renewal. This Subscription Form and the Terms and Conditions, comprise the entire Agreement between the Customer and Preqin Ltd.

Multi-User Emails:

For more information on any of Preqin’s online services, please visit: www.preqin.com

Completed Order Forms:

Post (address to Preqin):

One Grand Central Place60 E 42nd StreetSuite 2544New York, NY 10165

Equitable House47 King William StreetLondon, EC4R 9AF

Asia Square Tower 1#07-048 Marina ViewSingapore 018960

Fax:+1 440 445 9595+44 (0)87 0330 5892

Email:[email protected]

Telephone:+1 212 350 0100 +44 (0)20 7645 8888+65 6407 1011

alternative assets. intelligent data.

Name Standard License Order? (Please Tick) Premium LicenseOrder?

(Please Tick)Private Equity Online(All Five PE Services - includes 10% discount)

$9,150 / £5,600 / €6,590 $18,950 / £11,450 / €13,590

Performance Analyst $2,150 / £1,295 / €1,550 $4,295 / £2,595 / €3,075

Funds in Market $995 / £595 / €695 $1,895 / £1,095 / €1,295

Fund Manager Profiles $1,750 / £1,050 / €1,250 $4,400 / £2,650 / €3,175

Investor Intelligence $3,150 / £1,950 / €2,350 $6,295 / £3,750 / €4,450

Deals Analyst $1,950 / £1,150 / €1,375 $3,950 / £2,350 / €2,825

Secondary Market Monitor $1,950 / £1,150 / €1,375 $3,950 / £2,350 / €2,825

Real Estate Online $2,595 / £1,495 / €1,795 $4,950 / £2,950 / €3,550

Real Estate Capital Source $925 / £550 / €650 $1,750 / £1,025 / €1,225

Infrastructure Online $1,875 / £1,150 / €1,350 $4,950 / £2,950 / €3,550

Hedge Fund Investor Profiles $2,150 / £1,295 / €1,550 $4,250 / £2,595 / €3,050

preqin special report: european private equity · 2017. 10. 5. · managers, funds of funds,...

Documents