With so much happening in Europe, from the election of reformist Emmanuel Macron as President of France last month, to “hard-Brexiter” Prime Minister Theresa May’s failure to win a majority for her Conservative Party in the U.K. last week, we thought it an opportune time to zero in on Europe and the most popular investable European fundraisings in Palico’s online private equity fund marketplace.
As the Financial Times recently put it, “eurozone recovery has become the surprise economic story of 2017.” Although little heralded, the eurozone has expanded 5.1 percent in two-and-a-half years, versus 4.6 percent for the U.S. And with 15 quarters of consecutive growth under its belt, the single currency area grew twice as fast as the U.S. in the first three months of 2017. The consensus forecast for eurozone growth in 2017 has risen to 1.7 percent from less than 1.4 percent last summer. Unemployment has fallen to the single digits - 9.3 percent - and eurozone growth rate divergence is at its lowest level in two decades; the Italian economy grew 0.4 percent in the first three months of 2017 and Portugal’s spiked 1 percent. There’s pro-investment political momentum, with protectionist sentiment suffering a series of blows, culminating in the victory of EU champion Macron in France, and the U.K. election setback for May’s strategy of a radical U.K. break with the EU. Europe is also relatively cheap. The average private equity purchase price stands at 8.3 times corporate cash flow versus 8.8 in 2014 and a current multiple of 10.9 in the U.S. The euro and the pound are also close to 10-year lows to the dollar.
|French Focused Fundraisings are Popular|
Out of the seven most popular European fundraisings in Palico’s private equity marketplace, ranked by data room requests over the past three months, it’s noteworthy that two focus on France. France-focused private equity funds have seen their popularity rise since the May 7 election of reformist French President Emmanuel Macron. With polls indicating a parliamentary majority for Macron’s La Republique En Marche party after the second and final round of France’s legislative elections this Sunday, investor interest in France-focused funds is likely to broaden.
|U.K. Fundraisings Stand Out|
A bit more surprising than investor desire to invest in Palico-listed fundraisings centering on France, is the popularity of U.K.-focused funds - there are also two of these among the seven most in-demand fundraisings. Even when the prospect of a hard Brexit loomed large on the horizon, the U.K. was seen as a highly promising market for healthcare investment, the speciality of the second most in-demand European fundraising on Palico, RDCP Healthcare Opportunities II. Meanwhile, outside of Silicon Valley, London possesses one of the world’s most developed high-tech investment ecosystems - the city is the hunting ground of predilection for Isomer Capital, sponsor of the seventh most popular fundraising - an incumbent position with staying power, even in the event of a hard Brexit. With a soft Brexit, or even no Brexit now a credible possibility, U.K.-focused funds are likely to become more popular.
|No Buyout Funds Among Europe’s Most In Demand|
None of the seven most popular European fundraisings involve a strategy focused on leveraged buyouts - a testament to the growing diversity of private equity. The long-term activist investment style that defines PE encompasses all asset types from mezzanine debt instruments - a speciality of the third most popular European fundraising, Rockerway (a vehicle focused on financing Europe’s media and entertainment industry) - to agribusiness, the speciality of the sixth most popular European-focused fundraising. The sponsor of the latter fund, JB Equity, focuses on technology transfers between Europe and the world’s emerging markets.
|Beyond Fundraising, Europe’s Popularity Extends to Private Equity Secondaries|
Invest Europe, the leading trade organization for private equity in Europe, recently noted that European primary fundraising hit an eight-year high in 2016. Some €74.5 billion was committed by investors to European funds, representing a striking 37 percent year-on-year increase. Meanwhile, Real Deals, citing activity in Palico’s marketplace, notes that five of the 10 most popular funds in the secondary market over the last six months have Europe as their investment focus. Because GPs tend to carry assets on their books at relatively conservative valuations, the secondary market can offer even better value than primary fundraisings - though usually without the potential out-of-the-ball-park returns that characterize the latter market.
|Palico, the First Place to Go for Primaries, Secondaries, Co-Investments|
In today’s more diverse private equity universe, mainstream or more specialized fundraisings, secondaries and co-investments - anywhere in the world - are easy to find using Palico’s online marketplace. Palico offers LPs and GPs more opportunity to discover, analyze and invest.
|The Surprising Popularity of Recently Closed Funds in the Secondary Market|
Arguably, the most striking aspect of our ranking of the 10 most popular funds in the secondary market – based on wish list requests made in Palico’s private equity fund marketplace over the last six months – is that the top two spots are held by funds closed fairly recently. First place PAI Europe VI, closed in 2015, invested (referred to as ‘called’ capital in the table above) just shy of a third of its €3.3 billion through March 2016. By September 2016, second ranked Carlyle Capital Partners VI deployed roughly half of the $13 billion it raised through its 2013 final close. Marked interest in such recent funds, with some 50 percent or less of their capital invested, is typical at times when pricing in the secondary market is considered relatively full. Average sales prices in the secondary market have held above 90 percent of net asset value for four years now, with top funds today frequently selling at significant premiums to NAV. In this context, younger funds hold out the prospect of a relative bargain, since they typically have a longer runway for creating value.
|Getting Capital Back Quickly, at Low Risk|
Usually, the two principal attractions of the secondary market are the relative speed with which capital is returned – typically three to four years as opposed to 10 years or more for a primary fundraising – and the lower risk associated with the ability to evaluate real investments, rather than just a track record; the latter is all investors have to go by in a primary fundraising. Today, the 10 most popular funds in the secondary market are on average six years old and have typically called 82.5 percent of their capital commitments for investment. Although we did not calculate called capital the last time we engaged in this exercise in October 2016, the average age for the 10 most popular funds on the secondary market was eight years old.
|European Funds Remains Popular, Asia - Notably China - Makes a Better Showing|
The listing of the 10 most popular funds in the secondary market over the last six months is also noteworthy for its large concentration of European funds. As in October, five of the top 10 funds have Europe as their investment focus. With the euro relatively weak against the dollar on a historic basis, many investors clearly continue to believe that the best bargains today are in Europe. There are also two Asian funds among the 10 most popular, ninth place pan-Asian investment vehicle Baring Asia Private Equity V, and 10th ranked China-focused Hony Capital V. Back in October, there was only one Asian entry - pan-Asian fund Affinity Asia Pacific III in 10th place. China, out of favor for most of 2016, seems to be attracting stronger capital flows this year from private equity investors in both the fundraising and secondary market, as investors bet that China’s slowing economy is about to turn a corner.
|Palico is the First Place to Go for Primaries, Secondaries and Co-Investments|
Out of the hundreds of meetings an investor or a manager takes in the annual private equity commitment process, the vast majority are dead ends. By bringing investable fundraisings, secondaries and co-investments to desktops and smart devices, Palico cuts down on inefficiency, leaving both LPs and GPs more time to discover, analyze and invest in the best opportunities.
Footnotes: Capital called to fund investments through: 1 December 2016; 2 September 2016; 3 March 2016; 4 June 2016
This week Palico and the Institutional Limited Partners Association signed an agreement that should see the online PE fund marketplace’s substantial investor base of 2,910 accredited limited partners expand significantly.
There are 403 investable fundraisings, secondaries and co-investments currently available in Palico’s online marketplace (accredited general partners and limited partners list investable opportunities for free). They cover a remarkable range of strategies, 122 countries and every continent except Antarctica.
Over one out of four accredited private equity managers active in Palico’s marketplace are “remote,” or located outside of private equity’s traditional money centers in North America and Europe. When it comes to investors, more than one out of five looking to invest in primaries, secondaries and co-investments on Palico are remote. The ability to unite private equity fund investors located in 84 countries with managers based in 104 countries, is one of the Palico marketplace’s greatest strengths, at a time when private equity has moved well beyond its traditional roots.
Private equity funds-of-funds have gone through a major transformation since the financial crisis; one that is leading to renewed fundraising success. This is evident in Palico’s online private equity marketplace, where out of a field of 14 different private equity categories, fund-of-fund vehicles account for nearly 20 percent of the 50 most popular fundraisings.
If you’re a private equity investor, Palico, the world’s largest online PE fund marketplace, brings you investments focused specifically on your interests, for free. This eliminates time wasted hunting down the right opportunities. If you’re looking to raise capital, using Palico’s free data rooms to list fundraisings, co-investments or secondaries can get you direct access to hundreds - even thousands - of investors who have a declared interest in the strategy in question.
Given the high percentage of first-time fundraisings on offer, it’s not surprising that anchor investors frequently find investments in Palico’s private equity marketplace. Some 40 percent of 320 investable fundraisings for classic primary vehicles on Palico (there’s an additional 101 secondary and co-investment opportunities) are first-time funds.