Adveq: The private equity world is tri-polar

The key markets of Asia, the US and Europe have diverged in their rationales for investment and must be evaluated independently, according to the fund of funds manager.

Investors in private equity are for the first time faced with the prospect of a “tri-polar” investment world where the rationale for investment in the three major private equity regions differs greatly, acccording to Swiss fund of funds manager Adveq.  

Bruno Raschle, chief executive officer at Adveq, said at the firm's annual press conference in Frankfurt this week that the effects of the economic crisis are generating attractive opportunities for managers across the board, but each region must now be analysed separately. Private equity markets in Asia, Europe and the US are distinguished by markedly different characteristics and each “will operate on the basis of its own rules”, he said, according to a statement.

Asia’s strong growth, accentuated by the rapid growth of the Chinese and Indian economies, presents plenty of investment opportunities for the more than 100 quality fund managers investing in Asia, the firm stated.

In Europe, on the other hand, investment opportunities are largely dependent on European integration. Adveq said the sale of business units by large companies is expected to drive smaller and medium-sized transactions.

In the US, distressed businesses and technology companies offer the most attractive opportunities, said the fund of funds. Bankruptcies and defaults are presenting distressed and turnaround managers with promising opportunities, while in the technology sector, only high-quality innovations are being funded due to a low inflow of venture capital investments.

Looking forward, valuations, refinancing arrangements and exit markets are the biggest challenges for private equity firms in general, according to Adveq. The firm said most of the borrowed capital used for buyouts in the boom years between 2005 and 2007 is due for refinancing between 2013 and 2014. As such, those portfolios are yet to face “their biggest hurdle”.

From a fundraising perspective, the firm remains confident of investors’ appetites for the private equity asset class. “As a whole, institutional investors are very satisfied with their private equity programmes. There is evidence of a short and long-term outperformance over equity markets and private equity also has a stabilising effect on the overall portfolio,” Peter Laib, a managing director at Adveq, said.

Founded in 1997, Adveq has $4 billion of assets under management. It has offices in Zurich, Frankfurt, New York, Beijing and a representative office in Sydney.