June 16, 2017
Interviewed by: Privcap
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MVision: Capital Formation in Europe is Strong

A veteran fundraiser explains which types of GPs are raising the most capital in Europe, why European LPs remain bullish on private equity, and how U.S. capital is flowing into the region.

A veteran fundraiser explains which types of GPs are raising the most capital in Europe, why European LPs remain bullish on private equity, and how U.S. capital is flowing into the region.

MVision: Capital Formation in Europe Is Strong

Privcap:
How was 2016 as a private equity fundraising year in Europe?

Ophir Shmuel, MVision:
We did see a small number of very large managers come to the market, very quickly raise beyond their targets and hit their caps very quickly. On the heels of that, we saw a burgeoning growth in the mid-markets in terms of fund sizes and number of managers coming back to market and a continuation of that trend into 2017.

GPs see the fact that it’s a benign fundraising market and they want to take advantage of that right now, before potential for the window to tighten somewhat.

Privcap: What types of managers are winning the most capital commitments?

Shmuel: The bulk of the money is going to the pan-regionals or sub-regional players. Obviously, the large cap groups I mentioned are pan-regional and, looking at separate geographies within Europe, there’s a definite waiting toward northern Europe: DACH, Benelux, Nordics, UK. Southern Europe is of, I guess, specialized interests.

What you see in Europe, obviously versus North America, is rather than one large homogenous market, you’ve got a series of smaller markets where you need to have local knowledge and local networks in order to operate efficiently and successfully in those markets. There are managers who do it very well, but they’re ones with scale who understand and know those markets. They understand the regulations and have the networks in order to achieve their returns there.

Privcap: What are European LPs looking for in managers?

Shmuel: The investors are still looking for quality marriages. They’re looking for stories that don’t have any issues—no hair on them, strong track records, strong team, succession marriage correctly and GPs just continue to perform regardless of the markets. Investors are looking far more closely at how GPs produce their returns and how efficient they are in producing their returns because you can have a great gross performance, but you can get killed because you haven’t been deploying correctly or the fees eat into the returns because the distributions are being too slight.

Privcap: How about the flow of U.S. capital into European private equity funds?

Shmuel: One interesting thing we’re seeing is the quant of capital coming directly from the U.S. market. Not through gatekeepers sitting in London or Switzerland, but directly from U.S. investors coming into European small-cap managers, coming into first-time funds even within Europe. We’ve raised funds that have been the majority direct U.S. capital, which has taken us by surprise. Working with a UK manager post-Brexit, we’ve seen more capital come out of the U.S. for that strategy than we have in the European markets, which I think took us all by surprise.

I would say that investors in the U.S. are seeing the value in Europe and the fact that there are good managers there. It’s also a product of the fact that there’s a lot of cash in the market looking for a home.

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