Investor appetite for PE in North America and Europe likely to plateau, says new report

BY Fraser Tennant

Investor appetite for private equity (PE) across Europe and North America is showing signs of reaching a plateau, according to a new report by Rede Partners.

In its ‘1H 2019 Rede Liquidity Index (RLI)’ – an industry benchmark assessing investor sentiment toward the PE asset class – Rede reveals that the overall RLI score has fallen below 60 – standing at 59 for 1H 2019 (a baseline score of 50 represents no change in sentiment, above 50 indicates an expectation to increase and beneath indicates less expectation to deploy less).   

The jurisdiction which saw the greatest decline in overall RLI score was North America, which dropped 13 points to 50, meaning North American limited partners (LPs) are expecting to hold their commitments to PE steady rather than growing them.

In contrast, Europe has remained more stable. Six months ago there was a clear fall in sentiment among LPs in the UK and across Europe – a likely reaction to Brexit – as LPs began to adjust their investment programmes in the face of uncertainty. That said, sentiment has now stabilised, with a RLI score of 64 suggesting modest growth during 2019.

“The divergence in attitudes toward PE  between North American and European-based investors can perhaps be attributed to a more heightened awareness of cycle by the Americans, tied to their more bearish outlook on distributions,” said Scott Church, a partner and co-founder at Rede Partners. “With the decline of North American sentiment being driven by endowments and foundations, it is reasonable to suggest that other LPs may be expected to follow over time.”

In addition, the report – which features the views of 166 global institutional LPs – shows that despite an overall downward trend in PE sentiment co-investments remain an area of significant growth, with 96 percent of LPs stating their intention to maintain or expand co-investment activity.

“Although sentiment may be slightly muted compared to six months ago, PE unquestionably remains an attractive and resilient option for investors,” said Adam Turtle, partner and co-founder at Rede Partners. “Looking ahead, as PE continues to evolve, the overall long term outlook for PE as an asset class remains positive.”

Report: 1H 2019 Rede Liquidity Index (RLI)

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