Private Equity Funds in Europe 2008

Published by: Datamonitor

Published: Aug. 13, 2008 - 16 Pages

Table of Contents

Overview

Catalyst

Summary

Methodology

Executive Summary

Institutional investors are the largest customer segment for European private equity funds, but important shifts in the market are occurring

Special feature: The threat of sovereign wealth funds

The European private equity fund market is now primarily focused on institutional investors except in the UK where high net worth investors are the main client group

Institutional investors are particularly concerned about the liquidity of private equity funds in the current market

High net worth investors are seeking risk diversification but their demand is being held back by a lack of product understanding

The lack of liquidity of private equity funds may be a problem for mass market investors

Table of Contents

Table of figures

SPECIAL FEATURE: THE THREAT OF SOVEREIGN WEALTH FUNDS

Sovereign wealth funds are significant in number, assets under management, and influence

The Abu Dhabi Investment Council is by far the biggest SWF

SWFs are growing at a significant rate

SWFs are becoming increasingly aggressive in their investment strategies

The growth of SWFs means they are increasingly looking for the same investment opportunities as other traditional funds

Sovereign wealth funds are here to stay

The threat of SWFs is based on fears about national sovereignty being undermined

The management of SWFs is often professional with varying degrees of transparency

The activities of SWFs have implications for global financial markets

SWFs have helped to restore economic stability

A light regulatory framework could forge a partnership between SWFs and host country private equity funds

National and international regulation of foreign investment exists and a transnational code of practice is being introduced

Because of their significance, sovereign wealth funds are winning out

The activities of SWFs have implications for global financial markets

After an initial rivalry, private equity investors and SWFs have forged a partnership which provides protection for both

Home country private equity investors are losing out on some key private equity projects

Market Context

Institutional investors are the largest customer segment for European private equity funds, but important shifts are occurring

French mass market investors are increasing in importance while HNWs are decreasing, but institutional investors dominate the private equity market

Strong knowledge and the desire to diversify risk account for institutional investors' dominance in France

Despite regulatory barriers and limited liquidity, institutional investors will become an increasingly dominant customer base for private equity

The importance of the French HNW customer base for private equity is decreasing in favour of institutional investors

Product expense is a barrier for HNWs in France

Data tables

Italian HNW investors decreased in importance while institutional investors increased, but this will reverse in the next three years

HNWs have reacted badly to the economic downturn

Expenses hinder Italian HNW investors' further take-up of private equity

Italian institutions are cautious investors

German mass market investors became the largest client base for private equity funds among some asset managers for the first time in 2008, but institutional clients are still the dominant client base overall

Mass market investors are now the dominant customer base for private equity among 15% of German asset managers but there is concern that the mass market has insufficient understanding of the product

Downside protection is motivating institutional clients to take up private equity, but there is a concern about risk

Spanish institutional investors dominate the private equity fund market there while HNWs are decreasing in importance

Limited liquidity is hindering further take-up by institutions

Tax changes in 2007 eased the burden for private equity investors

Limited liquidity also bothers HNW and mass market investors in Spain, though media coverage of current economic troubles is reducing demand as well

HNWs became the most important customer base for private equity funds in the UK in 2008, while lack of selling expertise is hindering mass market take-up there

HNWs overtook institutional investors as the dominant client base in 2008

Education is the key to wider take-up

Advisor expertise is slowing up mass market investment in private equity in the UK

Mass market and HNW investors will become more important customer bases for private equity funds across Europe in the next three years

German mass market investors will not be put off by media hype to the same extent as other countries' mass market investors

Mass market investors are expected to be the largest customer base for private equity funds among 20% of asset managers in three years

Private equity management fees are a concern

The Italian HNW customer base will increase in importance within three years

Spain will see a slight increase in the importance of mass market investors in private equity funds

British mass market investors will continue to increase in importance for private equity funds in the next three years

Institutional investors in France will increase in importance for private equity fund providers

High product knowledge will drive the institutional market further

Distribution Dynamics

Reaching the mass market for private equity funds

Across Europe mass market investors are seeking diversification in their portfolios

French and Italian mass market investors are deterred by the expense and risk of private equity funds

Asset managers can best reach French mass market investors directly or through the retail banks

The German retail banks offer the best route to mass market investors there

Financial advisors in Italy and Spain are the best way to sell to mass market investors in those countries

Retail banks are one of the strongest ways to sell private equity funds to mass market investors in the UK

Reaching the high net worth market for private equity funds

In Germany, Italy, Spain and the UK, HNW investors are looking to diversify their portfolios

But in France downside protection is also an important motivator for HNW investment in private equity

Private equity managers and their marketing teams need to undertake an education promotional campaign

The key to boosting demand in France centres around communication about strategy and challenging tax/regulatory issues while in Spain confronting the limited liquidity of private equity is important

The German and UK markets require education about the benefits of private equity for risk diversification

Individual portfolio reviews should be offered to HNW clients in Italy

Reaching the institutional market for private equity funds

Institutions across Europe invest in private equity to diversify their portfolios

Liquidity, regulatory issues, risk and product knowledge are the key concerns for would-be institutional investors

An enhanced information and portfolio review service will help to sustain confidence among institutional investors

Asset managers in individual countries favour different distribution channels to reach potential institutional clients

APPENDIX

Definitions

Arbitrage

CAGR

Derivative

Fund of hedge funds

Fund supermarket

Hedge fund

HNW

IFA

Leveraged Buyout (LBO)

Liquid assets

Mass affluent

OEICs

Private Equity

Private Equity Funds

Selling short

Ultra HNW

Unit trusts

Venture Capital Funds

Methodology

Bibliography

Further reading

Ask the analyst

Datamonitor consulting

Disclaimer

List of Tables

Table 1: Which is your biggest customer group for private equity/ venture capital investments today?

Table 2: What do you think will be the major barrier to wider take-up of private equity/venture capital investments by institutional investors over the next year?

Table 3: To what extent do you agree that there is likely to be a significant economic downturn in Europe in 2008?

Table 4: To what extent do you agree that investors will be more cautious about investing over the next 2 years because of current conditions and their memory of the 2000-2003 downturn?

Table 5: To what extent do you agree that media coverage of current economic conditions is pushing customers into capital protected products?

Table 6: To what extent do you agree that media coverage of current economic conditions is reducing demand for private equity investments?

Table 7: What do you think will be the major barrier to wider take up of private equity funds by high net worth investors over the next year?

Table 8: What do you think will be the major barrier to wider take-up of private equity/venture capital funds by mass market investors over the next year?

Table 9: Which will be your biggest customer group for private equity/ venture capital investments in three years time compared with which is your biggest customer group now?

Table 10: To what extent do you agree that media coverage of current economic conditions is pushing customers into capital protected products?

Table 11: What type of organization do you work for? Q4 2007

Table 12: What is the average case size of business you deal with?

Table 13: In your opinion, what is the most important reason why mass market investors are demanding private equity and venture capital funds today?

Table 14: What do you think is the best way for private equity funds to be distributed to mass market investors?

Table 15: What is the most important reason why high net worth investors are demanding private equity and venture capital funds today?

Table 16: Facing the possibility of a global economic slowdown, which of the following strategies will be most effective in sustaining demand for alternative investments among your high net worth clients or the wealth managers who advise them?

Table 17: What do you think is the best way for private equity to be distributed to high net worth investors?

Table 18: What is the most important reasons why institutional clients are demanding private equity investments today?

Table 19: Facing the possibility of economic slowdown, which of the following strategies will be most effective in sustaining institutional demand for private equity investments among your clients or the wealth managers who advise them?

Table 20: What do you think is the best way for the private equity funds to be distributed to institutional investors?

List of Figures

Figure 1: Sovereign wealth funds are commodity or non-commodity based

Figure 2: The Abu Dhabi Investment Council dwarfs other sovereign wealth funds

Figure 3: Institutional investors dominate the European private equity investment market except in the UK

Figure 4: The limited liquidity of private equity investment is a key barrier to its wider take-up by institutional investors

Figure 5: Private equity fund managers are concerned that potential HNW investors lack a good understanding of this asset class

Figure 6: The risk of private equity/venture capital funds is limiting mass market demand

Figure 7: Over the next three years, there will be notable growth in mass market demand for private equity investment

Figure 8: Private equity funds will face more competition from capital-protected and structured products

Figure 9: The IFA industry is characterized principally by case sizes of less than £5,000

Figure 10: Private equity funds offer mass market investors the opportunity to diversify risk

Figure 11: Mass market investors are best targeted through financial advisors

Figure 12: Risk diversification is the primary driver of demand among HNW investors

Figure 13: Fund managers need to work harder to promote their offerings and investment strategies

Figure 14: Preferred distribution channels for HNWs vary among countries

Figure 15: Institutional investors in Europe are looking for portfolio diversification

Figure 16: Providers and distributors would do well to keep institutional clients informed about investment strategies and portfolio performance

Figure 17: Providers are divided over the best distribution channel to reach institutional investors

Abstract

• A developing partnership between Sovereign Weath Funds and private equity firms in host countries is limiting opportunities for small local investors.
• Analyses the market context of private equity fund investment in Europe today and reports asset managers' views on likely development in the market.
• Identifies the primary client segments and appropriate marketing and distribution strategies for individual countries.

• Gain insights into your target client segments, based on the collective experience of your peers in the private equity industry.
• Gain insight into the strategic options for developing private equity fund offerings in this challenging marketing environment.
• Key market information on the benefits of private equity fund investment for risk diversification.

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