EVCA Conference: Macro issues distorting market realities

LPs and GPs urged people to focus on the micro opportunities in Europe’s mid-market during the EVCA Mid-Market Forum in Budapest, whilst criticising political leaders for the way they have handled the economic crisis.

This morning’s first session at the EVCA forum offered cautious optimism surrounding mid-market opportunities in Europe. The general mood of the panels was that despite the macro situation dominating headlines in the region, the industry was exciting on a micro level.

During the LP perspectives panel, Pantheon partner Helen Steers suggested to GPs that they shouldn’t “Blow with the wind” and cannot be affected by media speculation about the Eurozone and sovereign debt crisis. Echoing her concerns, Rune Jepsen, investment manager at QIC Global Private Equity, said negative media actually overstated the current macro problems in Europe.

Steers hit back at suggestions that low growth was the main cause of subdued investment activity in Europe. She said growth rates in Europe were not that high even pre-crisis, and that Europe had many promising micro factors to offer in terms of small businesses, great infrastructure and innovation. Rune agreed, adding: “Economic growth doesn’t necessarily translate into equity returns.”

Capital flows are not the best predictor of where returns will be

Julie Gray

Rune’s comments were further confirmed by third panellist Julie Gray, principal at Canada Pension Plan Investment Board. Gray stated: “Capital flows are not the best predictor of where returns will be.”

The consensus was that as a well-educated, innovative region full of SMEs, Europe does have opportunities to offer – the trick lay in knowing where to find them. The advice of the panel was for GPs to “Find their core competency and stick to it.”

European political leaders came under fire for failing to address the economy at a quick enough pace. Gray said the most worrying issue for the industry was that Europe had been too slow politically at taking on recent economic challenges. She compared the continent to the US, identifying a much faster-moving political and economic reaction, with innovators driving the economy.

Karsten Langer, chairman of EVCA, spoke to Private Equity International after the session. He said political leaders had not properly addressed the “scary” macro environment, and accused them of threatening the industry with potentially damaging regulation. He noted that ensuring the industry’s safety against new regulation was the greatest challenge for the EVCA at the moment.

In a later panel discussion, speakers hailed Central and Eastern Europe as a top performer in the region economically, with particular reference to Poland. Thierry Baudon, founding partner of CEE-specialist Mid Europa Partners, said: “You’d have to look hard to find a better macro situation than Poland.”

When Western Europe sneezes, we catch a cold

Thierry Baudon

Against the bleak backdrop of a struggling Western Europe detailed by other panellists, Baudon said that due to strong growth, improving risk / return profiles, lower tax rates and more fluidity in markets, CEE was looking like a good place to invest.

However, Baudon added CEE was not insulated from what was going on elsewhere in the continent. “When Western Europe sneezes, we catch a cold,” he quipped.