News & Analysis

Looking forward: Europe in 2017

Macroeconomic volatility and political uncertainty are big themes on the minds of European secondaries professionals.

-

The year in Europe was dominated by Ardian’s fundraise for its ASF VII fund, the largest pool of secondaries capital ever, and HarbourVest Partners’ unsolicited takeover bid for SVG Capital. But the wider market saw plenty of tail-end sales, large portfolio disposals and restructurings. How will it evolve next year?

Here are three predictions:

Tail-ends will provide fodder for restructurings

Tail-ends accounted for more than 30 percent of first-half deal volume, according to Greenhill Cogent, and this figure is likely to rise, with deals involving older funds becoming larger, said Sebastian Junoy, a partner at Headway Capital Partners in London.

Investors will increasingly push for restructurings of older vehicles, according to Junoy, who highlights UK buyout firm Duke Street’s transaction with Goldman Sachs and Lazard to restucture its 2006-vintage €963 million fund as the type of deal we will see more of.

Sterling versus euro will be front of mind

The currency effect between pound and euro will be a big theme for buyers, according to Chi Cheung, head of secondaries Europe at DB Private Equity. Whereas US funds often invest in dollar-denominated assets, many UK funds invest in euro assets, and vice versa, leading to opportunistic buyside opportunities.

Additionally, a mismatch in net asset value can arise where a fund’s assets are denominated in pounds and the vehicle itself is denominated in euros, meaning a fund’s NAV can move on a daily basis due to dramatic currency movements, Cheung said.

“There will be some portfolio management around that and people outside the UK will take a view on the UK versus Europe,” he said.

Political volatility and uncertainty will help buyers

The implementation of Brexit and elections in France and Germany may lead to lower pricing, a good thing for secondaries buyers, according to Christophe Simon, partner and head of Idinvest Partners’ private funds group in Paris. One thing that could counterbalance this is the high level of dry powder held by secondaries funds, which could maintain high pricing levels next year, Simon notes.