Unsurprisingly, limited partners are anxious about having their money locked up in ten-year funds when the future of the euro is still in question. But a lack of high-quality product is set to cause a shift of capital away from Europe as the few best funds raise with ease and others fall to the wayside.
“If you look at the pattern of activity of the investors you can see they’re selective in Europe and conscious of their exposure,” says Mounir Guen, founder of global placement agent Mvision. “They’re looking for quality – historical groups, consistent track records, low loss ratios, deal activity. Believe it or not they can’t find those funds.”
Where limited partners remain committed to the continent they are reducing allocations, much to the benefit of nascent private equity markets in Asia and Latin America.
The problem is that where emerging markets allocations used to make up three to four per cent of total private equity programmes, this has tripled to around ten to 12 per cent and there simply isn’t the capacity to absorb this redistribution.
Because much of this capital comes from the US, the overspill is likely to stay on home turf rather than seek out second-rate funds in Europe.
“It can’t find a home. What you do when you can’t find a home for your capital is you go local. The majority of global capital for private equity funds comes from the US,” saysGuen.
A good start to 2011 fundraising was thwarted come the summer amid the Tea Party debt ceiling impasse in July and Europe’s ongoing sovereign financing troubles. A total of $262.6bn (€205.5bn) was raised globally throughout the year, with just $52.4bn picked up in the last quarter. In the heady pre-crash days of 2007, private equity managed to secure $600bn in commitments from investors.
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