A funny thing happened in Europe this month: for the first time in what seems like ages, we had some good news to celebrate.
Not about the macroeconomic situation, of course, which still looks unremittingly grim. As Private Equity International went to press, the meeting the Eurozone leaders had arranged to talk about having a meeting in which they’d definitely resolve the crisis – a prospect that had, remarkably, temporarily calmed tremulous markets – ended in failure. So the meeting to resolve the crisis is now just a meeting about another meeting, to be held some time the following week, where they’ll definitely sort everything out. Who knows – by the time you read this, Merkel, Sarkozy and co may have thrashed out a “comprehensive and ambitious response” that allows for an orderly Greek default and boosts the Eurozone’s rescue fund to protect Italy and Spain. But on the evidence thus far, we’re not holding our breath.
No, the good news – at least as far as private equity is concerned – came from Swedish buyout firm EQT, which announced that it had closed its sixth buyout fund at its hard cap of €4.75 billion, after just nine months in the market. The fund, which was heavily oversubscribed, is one of the biggest raised in Europe since the onset of the financial crisis.
Of course, there are all sorts of ways in which EQT was better placed to raise money than some of the other managers currently in the market. The Swedish firm has a strong track record, with returns from Fund V boosted by a string of successful exits in the last year. It has, as the the firm’s head of equity Christian Sinding puts it, “a proven industrial model for developing and growing companies”. It’s had strong fundraising support from the placement team at UBS. It operates in the mid-market, which investors seem to love at the moment. And it probably doesn’t hurt that it’s based in Scandinavia, which is one step removed from the worst of the problems in the Eurozone.
Others will lose out, inevitably. An investor study published by Coller Capital earlier this year found that 87 percent of those surveyed planned to turn down some GPs’ requests for reinvestment over the next 12 months. With so many funds either in market or about to come to market, investors can afford to be picky; and they can afford to be more demanding about issues like succession planning. So it’s no wonder that LPs (on both sides of the Atlantic) are currently receiving more requests to extend fundraising periods than they’ve ever had before.
Nonetheless, success stories like that of EQT provide a welcome antidote to all the negativity currently swirling around about how difficult the fundraising environment is at the moment. As its example proves, there is money available for managers who have a good story to tell, and tell it in the right way.
And this isn’t just helpful to GPs. After all, investors read the newspapers too; they’re just as bombarded by gloomy headlines as the rest of us, and it’s hard to imagine they can dissociate their investment decisions from that kind of sentiment altogether. The knowledge that their peers are still making big bets on the likes of EQT – and BC Partners, which is likely to close an even bigger buyout fund in the coming months – won’t necessarily persuade them to splash their own cash. But it could be a useful nudge in the right direction. Confidence and momentum are fragile things, so good news matters.
Unfortunately, it will always be the case that bad news generates more headlines than good news. This month is far more likely to be remembered for the ongoing shenanigans in Brussels than it will be for EQT’s fund close, or for an interesting report released at the EVCA conference in Budapest suggesting that mid-market firms make most of their money from genuine value creation rather than financial engineering. In their different ways, both of these stories point to an industry in Europe that is still clearly alive and kicking. Let’s just hope that the politicians don’t end up scuppering it for everyone by their failure to act quickly, collectively and decisively.