“It’s going to be a very busy 12 months,” Altius Associates head of Europe, Middle East & Africa Rhonda Ryan told Private Equity International.
The second half of this year has been noticeably busier than the first half with new funds coming to market, she said.
Ryan estimated that funds in her geographies are looking to raise at least a combined €30-40 billion in the next 12 months. These are predominantly pan-European vehicles.
Altius manages and advises on €28.5 billion, with the bulk in separately managed accounts and predominantly focused on private equity, but including US venture, real assets and credit, which developed post-crisis.
Funds are coming back to market taking advantage of strong distributions, which look set to surpass those in 2014, with totals for the first nine months of the year almost equal to last year, she said.
“The fourth quarter is typically the strongest [in terms of distributions],” she noted.
Ryan said she spends time advising her LP clients to stick to top tier funds. “When LPs get a lot of distributions, they look to redeploy and if some LPs can’t get sufficient allocation to the best funds they will look to the next fund and move down. This is not a strategy that I would recommend.”
There are a lot of first time funds in market and the last time there were this number was before the financial crisis, Ryan said. “There is LP appetite for first time funds, and there was in ’07 and ’08” she noted, but not post-crisis.
When asked if there was a noticeable rise in funds targeting a limited number of large investors, such as Castik Capital, which raised €1 billion from six LPs, Ryan noted that “if I was a GP, I would want a diversified LP base. In the financial crisis, a number of investors disappeared and ones that you would never have anticipated. With a diversified base I’m able to raise my next fund.”
“It is feeling very frothy at the moment,” Ryan said of the investment environment, with seemingly more GPs investing now than six months ago. She expressed concern about funds’ ability to deploy capital, particularly given current high prices.
“With GPs, you have people that want to do deals and it requires discipline on behalf of GPs and investment committees to say ‘stop’. Experience is key,” she said.
This also applied to bankers, Ryan noted, adding that during the financial crisis the industry lost banking professionals with experience of going through the cycle several times. “I wonder if we have that level of experience today, the grey hair that has been one, two, three times around,” she said.
However, firms seem to have absorbed the lesson of the financial crisis and, despite debt being widely available, appear to be more cautious about using too much leverage, she noted.
Ryan’s remit includes the Middle East and Africa but she is mainly focused on Europe where, she maintained, the risk-return is better.
She saw little interest in the Middle East, and noted that in Africa there has been a lot of money raised “but there’s not the same level of opportunity and prices are high because of the level of capital raised.”
“Fund raising and prices are going up but there’s a limited track record. We’re not advising clients to rush into Africa. The consistency isn’t there yet. There might be some good returns but then there are also losses. You can be too early to a market.”
In Europe, Ryan remarked on the divide between east and west, and commented that eastern Europe had been slow to recover from the financial crisis.
Among western Europe markets, there has been a lot of capital raised targeting Spain in the past 18 months, she remarked. “It has its issues but seems to have turned a corner and LPs have decided to go there.”
France remains “tough”, she said. “It’s difficult to do deals there and half of deals are secondary transactions.”
The UK remains a competitive market and when Altius builds a portfolio, it anchors it first with pan-European funds and next with UK vehicles, Ryan said.