Private equity set to become the largest alternative asset class in Europe


Financier Worldwide Magazine

September 2019 Issue

Hedge funds have remained the largest part of the alternatives market in Europe, but a 9 percent decrease in assets under management (AUM) over the past 12 months has left private equity (PE) poised to usurp it as the largest asset class in the region. PE assets in Europe stand at €559bn, having seen an increase of 8 percent during the first half of 2018. Last year also saw the PE industry in Europe set several new records for activity, which shows no signs of slowing down.

The PE and venture capital (VC) market has gone from strength to strength in Europe, and currently represents the largest private capital asset class in the region. Investors have ensured a consistent flow of capital into the industry over the past decade, encouraged by strong returns and high distributions.

After the global financial crisis in 2008, the industry saw a slowdown in fundraising, but since 2011 it has grown past previous pre-crisis highs. Europe-focused fundraising reached a peak in 2016, as fund managers secured €109bn. That year saw five funds secure over €5bn, followed by two in each of 2017 and 2018 that did the same. The total capital raised in the two subsequent years has declined, but fundraising remains strong, securing €98bn and €86bn in 2017 and 2018 respectively. A reason for this decrease may be linked to the fact that Europe-focused PE funds are flooded with capital, and fund managers face a growing challenge in putting ever-greater amounts of money to work in attractive investment opportunities.

AUM have been continuously growing over the last 10 years. As of June 2018, dry powder reached its highest amount ever recorded – Europe-based managers held €211bn ready to deploy. As more participants enter the European market and managers are able to call upon a greater amount of available capital, the challenge of putting this capital to work effectively intensifies.

If we take a look at the capital returns, Europe-focused PE investments have given positive net cash flows to investors over the last six years. The highest net cash flow was seen in 2015, with over €65bn more being distributed to investors than was called up. The amount of capital called up by fund managers in 2017, the latest full year available, almost doubled from €53bn in 2016 to €92bn. In order to successfully compete in the European market and continue deploying funds, fund managers are putting more capital to work than ever before. Recent full-year distributions have remained above the €100bn level though, and so cash is still being distributed – over €20bn in H1 2018 – even as call-ups have reached record levels.

Deal activity in the PE industry has also been increasing. In each of the past five years, an aggregate €100bn in buyout and venture deals was completed. The average value of a European PE-backed buyout deal in 2014 was €211m. In 2018, this figure reached €328m, highlighting the greater amount of capital required to remain competitive. The scenario is similar in the VC space where, over the same period, the average value of deals increased from €4.7m to €7.8m. This trend shows no signs of reversing, and in Q1 2019 the average venture capital deal size increased to $10m. Appetite for European companies appears undimmed by these rising prices, as more deals for European PE assets were completed in 2018 than ever before. The year recorded 1901 buyout deals worth €120bn and 2941 venture capital deals worth €20bn, both record highs.

The VC market appears to have caught the interest of both investors and fund managers, spawning some huge success stories. Europe-focused investors are seeking more exposure to this market and VC fundraising reached a new high of €9.4bn in 2018.

But has this move toward PE and VC been the same in other European countries?

The UK’s alternative assets market is the largest and most active across the continent. PE and VC represent the second biggest industry in the country with €282.5bn in AUM. It is the most active market for both buyout and VC deals, with a total of 1752 deals recorded since the start of 2018 with an aggregate value of €59bn.

In France, where PE is the largest asset class, VC deals reached a record €2.9bn in value in 2018, while PE-backed buyout deals have surpassed €15bn in two of the past four years. Seventeen deals have completed for €1bn or more since 2015.

Germany has emerged as a global VC hub in recent years, with only the UK market recording more VC deals in Europe since the start of 2018. Activity in Germany has more than trebled since 2014, when €1.1bn of VC deals were completed, to record €3.7bn of deals in 2018. As in the global VC market, valuations have been on the rise: the increase in aggregate deal value since 2014 was accompanied by relatively flat annual deal numbers. Germany continues to make its mark as a global VC hub and, as more success stories are seen in the industry, investors will continue to seek exposure to this growing market.

PE represents the second largest alternative industry in Switzerland. The country’s market is important in that it houses many key players in alternatives and attracts significant investor capital and less so for its deal making activity. But there is still significant activity in the country. Since the start of 2018 there have been 1869 PE deals made with a value of €182m.

The Italian PE and VC market is relatively small and new in comparison with other European countries; however, it has grown significantly in recent years, recording over €12bn of PE-backed buyout and VC deals in 2018, the highest annual amount ever seen in Italy. Even though it is relatively small and with fewer general partners (GPs) than other countries, VC is experiencing an important positive trend, both in terms of the number of deals and amount invested.

In Luxembourg, hedge funds are by far the biggest industry – it is almost double the size of the PE and VC sector. Despite this, the asset class accounts for the biggest deal activity. In Q1 2019, buyout deals reached the value of €862m and VC, €90m.

Spain represents one of the smaller European alternative asset markets. PE represents more than 70 percent of the market within Spain in terms of assets. Over the last 18 months, real estate has been the asset class gaining more space and driving an influx of capital into the country. Despite this, the number of buyout and VC deals rose to 288, although their aggregate value of €10bn stayed the lowest after private debt – €200m.

Denmark’s business environment is highly suited to operating in the VC and buyout markets. The deal market is healthy with capital being deployed in Denmark and PE firms seeing successful exits. VC is also gaining momentum within Denmark. In 2017 and 2018, new Denmark-based VC firms successfully raised new €100m-plus funds. Regarding investments, although buyout and VC deals accounted for the highest amount of deals, 167 together, their €1bn value puts them in second place in the country, behind private equity real estate (PERE) deals which were valued at €1.1bn.

Activity in the PE and VC market in Norway in 2018 was higher than any level recorded before 2016. As of June 2018, AUM stood at €9.2bn. In the venture space, Norway saw deal volumes and values in the seed space increase in 2018 to the highest values in a decade. Larger VC deals are rarer, mirroring the Norwegian venture market where larger venture funds are few and far between. Over the last 18 months, PE closed 70 VC deals and six buyout deals, with a value of €259m and €2.6bn respectively.

Although hedge funds remain strong in European countries, the PE & VC industry is breaking powerfully into the European markets. Deals in the asset class are stimulating activity in the industry and this may attract Europe-focused investors in the coming years.


Christopher Elvin is head of private equity products at Preqin. He can be contacted on +44 (0)20 3207 0256 or by email:

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