Leaving aside the two major political upheavals of the last few months (Brexit, the Trump presidential win…), what do you see as the top issues for the private equity sector in 2017?
There are, of course, more elections coming up in European countries next year. One could expect uncertainty and volatility around these elections. The political outcomes could have important consequences across the board, including an effect on consumer confidence. It is hard to see an improved investment climate in a year’s time.
When it comes to the private equity sector in 2017, there are a few topics I would like to raise. First of all: will managers resist the temptation to improve terms for their firms at the expense of risking upsetting their long-term LP’s in a low-yield environment? Two further question marks for next year: will managers find enough deal flow for at least high teen gross returns? And what will happen to interest rates given the changed monetary outlook for the US?
Where do you see opportunities for growth and innovation?
LPs money investing directly in companies will grow, I think. Also long-term hold stra-tegies at lower expected returns will grow.
To what extent has Brexit disrupted the outlook for the sector?
There is no doubt that for the next few years it will be tough to predict the business climate in the UK.
What other long-term political issues could seriously reshape the industry next year and dampen investor interest in private equity?
I would say populism in general could have a negative effect on the industry and hurt investments.
It’s obviously early days, and no one has a crystal ball, but given Donald Trump’s proclamations as US presidential candidate, what influences do you see arising for the industry from a Republican government?
Our private equity investments are part of a €200 billion pension portfolio. If I take a broader perspective here, I would say that we are worried about the possibility of more protectionism in the first place. It may bring some benefits to certain parties in the short run, but it will do harm to economies in general in the long run. Whether you look at managing climate risk, financial regulation, monetary policy or trade tariffs, governments should act with a long-term perspective. If we as a pension fund manager would only aim for short-term gains, in the long run returns would be insufficient to be able to pay out decent pensions.
Looking at the venture capital side of the industry, do you agree with observers who believe 2017 will be the year that Europe finally catches up with Silicon Valley and the US?
I think it is great to see some successes in Europe now, but there is a lot to do before Europe catches up.
Do you believe returns on private equity investment will remain at current levels or possibly increase?
Private equity returns have been very good over the past few years, significantly outperforming public markets. I think there is a strong case that the outperformance will continue going forward. However, it seems unlikely that the absolute net return will increase. It will be rather the contrary, and this could seriously jeopardise the inflow of money in the industry.