LPs: ‘Europe is the place to be’

LPs at the EVCA conference in Vienna say the region is looking increasingly attractive.  

Good news for European GPs on the fundraising trail: LPs are cautiously optimistic about investing in Europe.

During an LP panel at the European Private Equity and Venture Capital Association (EVCA) conference in Vienna, investors said that despite low GDP growth rates, underlying European portfolio companies have been growing in recent years.

US investors in particular perceive Europe as a cheaper place to invest, according to Christophe Nicolas, a managing director at AlpInvest Partners.

“One of our managers recently bought a company in Italy that has a leading market share, is anti-cyclical and [growing] well. They bought it for 7.5x EBITDA. The same business was bought in the US with a similar market position for over 11x. Europe is growing at a slower pace, but prices are cheaper,” he said.

There’s a lot of demand for European companies, which also makes the region more attractive, George Anson, managing director at HarbourVest Partners and outgoing EVCA chairman, said.  “The desire to invest in Europe from overseas corporates both in emerging and developed markets is greater than it has ever been. That’s a great statistic when you talk to investors [about] why they should invest in Europe.”

The pan-European funds have been the big winners, followed by GPs based in the Nordics, Nicolas said. Yet, while LPs haven’t rushed into Central and Eastern Europe in recent years, competition is low and prices are good, Anne Fossemalle, director of equity funds team at the European Bank for Reconstruction and Development, suggested.

“If you look at private equity penetration in Central and Eastern Europe, it is below Sub-Saharan Africa. The deal flow in the region is still [mainly] proprietary, so there are many attractive transactions,” she said.

Yet while the investors were bullish on Europe, they did express concerns about the changing regulatory environment affecting the industry. “Increasing the burden of reporting for managers, and higher taxation rates that will stifle entrepreneurial creativity probably won’t do much to help private equity and venture capital,” Anson said. “Governments [should] stay out of the way and let private equity, venture capital and entrepreneurs do their job,” he added.  “Each time [regulations come up which] may or may not be implemented, this [leads to] US LPs [pulling back from] investing in Europe.”