According to eFinancial News, increases in the success of private equity (PE) portfolios across Europe saw their value increase by as much as 30% in 2013.
The website says that European managed funds have been releasing their valuation figures over the last month, with Carlyle Group and Permira among the firms to see in excess of 20% growth in value.These two companies were also the ones to see 30% increases.
Permira’s fourth fund added approximately 30% in value for 2013, based on an investor note seen by eFinancial News, while Carlyle Group’s exclusive European fund, the company’s third, grew 33%.
Private Equity Record Breaking
Despite concerns related to the amount of dry powder and apparent lack of deal flow across the PE marketplace in general, it is positive to see that existing investments are delivering lucrative returns for these funds.
In particular, this growth points to sustained success through the second half of 2013. This would represent the strongest performance across the PE marketplace based on available records, which go back to late 2007.
Given the well documented global economic downturn that was experienced in 2008, it is not surprising that we are starting to see records broken across the PE marketplace. The last data that was provided to eFinancial News by Preqin demonstrated consistent growth in the four quarters up to Q2 2013; given what the annual figures indicate and the continued strengthening of the economy in Europe, it is entirely plausible that we are now into the eighth consecutive growth quarter.
Buyouts Involving Debt
The primary reason portfolio valuations struggled in the period from 2008 to 2012 was down to the number of businesses that had been the subject of buyouts with debt involved in the deal.
The extent of the downturn was such that many businesses and indeed PE houses struggled to pay off debts. Improving credit ratings and financing across Europe has undoubtedly made a big difference, as has the growing feeling that Europe is starting to become the centre of the PE market rather than the United States, which has until now always been the world’s foremost PE centre.
David Walker of Latham & Watkins told eFinancial News, “Portfolio companies are doing better because the economy is picking up generally, both in the UK and globally. Exit multiples will also have improved, particularly because of the strength of the public markets, the scarcity of high quality assets for sale and the continued availability of relatively cheap debt.”
Concerns Over Public Markets
There have been concerns that the strong improvements seen by public markets would undermine PE. Indeed, the number of PE houses that have undertaken buyouts and then looked at an IPO as an exit strategy indicates how strongly they have been performing.
However, it is generally accepted that public markets struggle to deliver consistently high numbers over the long-term, and that this will prove the opportunity for PE firms to acquire further growth and enhance their portfolios further. 2014 is likely to be another record breaking year in terms of portfolio value, particularly if firms continue to be picky and are only investing in the potentially high return opportunities.