Investors are increasingly turning to private-equity firms
in Europe for yield just as its taking longer for the
buyout industry to exit their deals.
European private-equity firms last year raised the most
capital since the financial crisis while divestitures slowed,
according to an Invest Europe report this week. They exited buyout
investments in more than 800 companies, with an 18 percent drop
in the amount divested compared to 2015, the report
Investors are concerned about how much theyve
contributed to private-equity funds because it may take longer
than they initially estimated to see a return on their money,
according to Graham McDonald, head of private equity at
Aberdeen Asset Management. Some also are worried that the high
level of cash that buyout firms raised has resulted in
increased competition for assets and expensive deal
There are currently legitimate concerns about the
prices being paid for assets, McDonald said by phone.
That combined with the low interest rate and growth
environment begs the question: are they going to see a
compression in returns?
McDonald said he expects that European buyout firms will
make about 2.5 times their initial investments in companies
over a five-year period.
The European private-equity industry raised 74.5
billion ($83.1 billion) last year, the most since 2008, after
making 40 billion of divestments in 2015, according to
the report from Invest Europe, which is an
association of European private-equity firms. That included
about 56 billion of buyout fundraising, a 70 percent
increase from 2015 that was driven by larger funds, the report
shows. Pensions remained the largest institutional investor in
European buyout funds.
The most prominent method of exiting buyout deals was
through a sale to other private-equity firms, representing 31
percent of last year's 28.4 billion of divestitures
at cost, the report shows.
A company may see a second or third private-equity owner
because the first owner cashed out before achieving all
potential improvements to operations, according to Michael
Collins, Chief Executive Officer at Invest Europe.
Pass the parcel for the sake of pass the parcel is
where investors get concerned, said McDonald, adding that
he doesnt see this often. Weve certainly seen
companies in their second or third iterations where you still
see healthy returns being achieved for investors, he said
of businesses that are sold by one private-equity manager to
Meanwhile, many investors strapped for liquidity because of
delayed exits by buyout firms are looking to the secondary
markets to sell their private-equity interests.
Secondary markets have seen phenomenal growth, McDonald
Such markets allow investors to experiment with asset
classes, and helps them gain access to larger private equity
firms they might not otherwise be able to access, according to
In the past, it might have looked like a sign of a
lack of confidence, he said. Now the secondaries
market being seen as the next step in the development of that