In an extract from the recently released 2015 Preqin Global Private Equity & Venture Capital Report, we analyze the results of Preqin’s latest survey of private equity and venture capital fund managers in order to gauge their concerns, views and plans for the year ahead.
Key Issues
Fundraising, valuations, performance, exits, and ongoing volatility and uncertainty in global markets were all highlighted by significant proportions of respondents as some of the biggest challenges facing the private equity and venture capital industry in the year ahead. However, significant variation exists between firms with differing strategies. Surveyed buyout firms felt that regulation and valuations were the most significant challenges they will face; this is understandable considering the arrival of the AIFMD and the competitive buyout deals landscape driving high prices. The highest proportion of surveyed venture capital managers listed performance as the key issue over the next year, despite producing the strongest one-year horizon returns of any private equity fund type, indicating that these managers are still feeling the pressure to deliver consistent returns to their investors.
Deal Flow
The private equity deal market has seen strong deal flow in recent times following a general shift in macroeconomic conditions post-crisis. Fifty-four percent of survey respondents felt there had been a rise in competition for private equity transactions compared to 12 months ago; 39% felt levels had remained the same, while 1% felt competition levels had dropped. Only 44% of growth firms and 38% of venture capital firms felt there had been an increase in competition, against 66% of buyout firms, again reflecting the competitive market for deals. The increased availability of debt and growing dry powder levels are likely to put pressure on pricing levels, which may impact the returns seen by fund managers and, in turn, investors.
The increase in competition and pricing will emphasize the need for funds to develop differentiated ways of creating value, in order to deliver good returns in a challenging market. Preqin’s survey results reveal that 44% of fund managers are reviewing more investment opportunities than 12 months ago, demonstrating the increased efforts by GPs to source the most attractive deals possible to add to their portfolios; only 6% of GPs were reviewing less. The majority of GPs (83%) are finding the market more difficult to navigate.
Click here to read the full article covering investors, fundraising and regulation, plus a contribution from Andrea Lowe, CEO of LPEQ, and the usual Spotlight news and statistics.
Don’t forget to subscribe and receive a free edition of Private Equity Spotlight every month.
