Preqin forecasts a doubling of Europe-focused private equity assets under management over the next 4 years
Looming energy crisis reveals opportunities for venture capitalists
Europe’s private markets have grown significantly over the years, with investors allocating significant capital to region-focused funds to access private capital opportunities.
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The total assets under management (AUM) of Europe-focused private equity funds stood at €2.2 billion at the end of December 2021, according to Preqin Pro, the database and analysis tool of the society.
To put that into perspective, in December 2015 the sector’s assets under management were around €1.3 billion, almost doubling in the last 7 years.
Now, Preqin analysts predict that by the end of 2026, private equity assets under management in Europe are expected to reach €4.9 billion, generating a compound annual growth rate (CAGR) of 14% since 2021. .
The crisis creates opportunities for venture capital
The strong performance of private capital assets following the global financial crisis (GFC) has attracted many new investors to these markets. Additionally, the COVID-19 crisis has created new opportunities in Europe, with the sharp V-shaped rebound helping existing investments in older vintages and significantly boosting performance.
In the European alternatives industry, falling interest rates throughout the pandemic have pushed equity valuations to historically high levels.
The positive impact on the internal rate of return (IRR) of private equity and venture capital (VC) has been significant, with the one-year-ahead IRR of European-focused venture capital funds up to in December 2021 reaching +43%.
However, more recently, while venture capital fundraising has held up, private equity fundraising at the end of June 2022 was only €34 billion raised, compared to €136 billion. in 2021.
UK losing ground to Luxembourg
Looking at historical AUM data, until recently the United Kingdom (UK) dominated the AUM of European alternatives across all asset classes, but at the end of 2020 Western Europe* overtook the UK in terms of AUM in all private capital asset classes except private assets. debt and, more broadly, hedge funds.
While growth in assets under management in Western Europe now outpaces that of the UK, fund domicile data shows that the UK has also lost ground to Luxembourg, particularly since 2017. 2021, this has reversed at 16% and 46%.
Europe must diversify its energy assets to reduce its dependence on Russia
As Europe finds itself in an energy crisis, governments and the European Central Bank are scrambling to prepare for a harsh winter as inflation dampens real incomes.
The importance of alternative models to help rebalance supply chains will become evident as private capital continues to play a central role in achieving the energy transition towards independence from Russian oil and gas. .
Alex Murray, Vice President, Research Insights at Preqin, says: “As alternative asset classes continue to grow and integrate into global capital markets, their role in Europe is of growing importance in ensuring economic growth and resilience in the face of growing challenges.
As the continent grapples with a deepening energy crisis, the longer-term path to energy independence will be traveled with private capital at the center of the energy transition.
Murray continues: “Our forecasts suggest that infrastructure AUMs will overtake real estate in the region before 2026. Even in a deteriorating economic environment with persistent inflation and rising rates, private capital offers investors ways to diversify their exposures. at risk.
For example, direct lending funds in the region will benefit from the floating rate structures used there as the ECB tightens policy rates to control inflation.
Top Alternatives in Europe 2022 Facts
- AT M : Total European-based private capital AUM stood at €2.2 billion at end-December 2021 according to Preqin Pro. By the end of 2026, private equity assets under management in Europe are expected to reach €4.94 billion, with a CAGR of 14% in assets under management from 2021.
- Infrastructure and private debt in mind: Asset class forecasts in Europe suggest that infrastructure and private debt are expected to see the strongest growth in overall assets under management between 2021 and 2026. Their respective CAGRs are 24% and 19%.
- Luxembourg takes the lead: In 2010, the United Kingdom and Luxembourg hosted respectively 41% and 15% of the capital of funds targeting Europe. In 2021, this reversed to 16% and 46%.
- The Nordics: The region’s record of €27 billion in annual fundraising in 2021 dipped to just €5 billion in June 2022.
Asset Class Breakdown
- Capital investment : Private equity is expected to remain by far the largest asset class in 2026, reaching €2.1 billion, and representing 43% of private capital in Europe.
- Capital risk : The one-year-ahead IRR of European-focused venture capital funds through December 2021 reached +43%.
- Private debt: Actual allocations for private debt have effectively caught up to their targets since the second quarter of 2015, reducing the gap from 3.6% of assets under management (AUM) to just 1.7% in 2022, while actual allocations have set at 3.3% of AUM.
- Immovable: The asset class remained the central target among the alternatives. The latest fund market data for Europe suggests that real estate maintains a higher level of overall targeted capital (€101 billion) in June 2022 compared to infrastructure (€77 billion). However, Preqin forecasts suggest that AUM infrastructure will overtake real estate around 2025.
- Infrastructure: Infrastructure has seen a marked rise globally, although most of it is intended to be deployed in North America. Natural resources have seen the largest overall increase in median target allocations, from 0% in 2015 to 3% in 2022, with European investors rapidly increasing this asset class to 2.3% of actual allocations this year.
- Natural resources: The asset class has seen the largest overall increase in median target allocations, from 0% in 2015 to 3% in 2022, with European investors rapidly increasing this asset class to 2.3% of actual allocations this year.
- Hedge funds: Recently, assets under management for Europe-based hedge funds have taken a hit, down 9% from Q4 2021, thanks to a net return of -6.4% in Q2 2022.
* Western Europe includes: Alderney, Andorra, Austria, Belgium, France, Germany, Gibraltar, Guernsey, Ireland, Isle of Man, Italy, Jersey, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Portugal, San Marino, Spain, Switzerland.
Preqinthe House of Alternatives™, gives financial professionals who invest in or devote to alternatives essential data and information to make decisions with confidence.