Looking ahead: Europe in 2018

Fears of a bear market, declining UK appeal and Asian acquisitions are expected to dominate the continent in 2018.

European fundraising soared to pre-crisis highs in the first half of 2017, while several of the continent’s largest economies suffered political upheaval on a scale not seen for some time. But will 2018 be a mixed bag too? Here are industry experts’ predictions of the trends most likely to emerge in this year.

What goes up

There is plenty of talk of the next downturn. Such concerns have already seen investors flock to distressed debt funds in anticipation of a sinking market.

“Fears of the bull market ending will only increase in 2018,” says Adam Turtle, founding partner of placement agent and advisory firm Rede Partners. “LPs are becoming more attracted to less cyclical sectors such as healthcare and strategies with debt or assets underpinning them, as the bull market gets long in the tooth.”

GPs are already mobilising. CVC Capital Partners has had around a fourfold increase in healthcare opportunities taken to its investment committee since the beginning of 2017, head of European healthcare Cathrin Petty told PEI in October.

Others are tapping into this shifting LP demand with the introduction of new products. Capital Dynamics is understood to be targeting a first close in Q2 for its debut lending fund after launching a credit arm last year.

Continental drift

The Brexit referendum had a tangible impact on demand for UK assets in 2016, before a resurgence in 2017. With Brexit negotiations an ongoing – and increasingly difficult – task, limited partners could turn to mainland fund managers in a bid to minimise their exposure to uncertainty in the UK.

“There’s going to be the ongoing circus of Brexit next year,” Turtle notes. “France, Spain and Italy have been harder to raise money in but we’re likely to see a rebound of continental Europe in contrast with [the UK].”

French private equity firms had a 30 percent rise in fundraising during the first half of 2017, according to research from the French private equity association and Grant Thornton. GPs raised €8.1 billion in H1 2017, up from €6.2 billion the same period of the previous year.

Go west

A number of firms embraced GP interest stakes last year. Whether it be through dedicated fixed-term funds, evergreen vehicles or balance sheet capital, firms are waking up to the potential to tap into a broader array of LPs, geographic exposures and return prospects.

While the most common expansion play remains transatlantic, 2018 could see a greater number of Asian GPs looking west, according to Antoine Dréan, chairman of advisory firm and intermediary Triago.

“We are starting to see Asian GPs – mainly from China where there are some huge firms – setting up teams in Europe and the US,” Dréan says.

Chinese companies have already shown growing interest in European financial services. In September Beijing-based investment group Legend Holdings announced plans to acquire an 89.9 percent stake in Banque Internationale à Luxembourg.

In 2016 Chinese technology and investment group Cocoon Networks launched a £500 million ($670 million; €564 million) London-based venture capital fund targeting UK and European start-ups.

Asian GPs setting up teams in Europe and the US is likely to amplify considerably over the next few years given the size and ambitions of the largest Asian funds, Dréan says.

“I wouldn’t be surprised if we see a mega-firm from China acquire a group or groups in either the US or Europe over the coming year.”