European demand for private equity alternatives reaches unprecedented levels, according to Neuberger Berman's assertion.
The European markets for private equity and private debt are witnessing a significant surge, driven by various factors such as regulatory pressures, economic volatility, and the increasing demand for alternative financing options.
**Motivations for Increased Demand**
The appeal of private equity lies in its resilience and consolidation opportunities, with Europe's economy demonstrating resilience during times of volatility. The region's fragmented company landscape offers strong potential for consolidation, attracting investors seeking to expand their portfolios through strategic acquisitions. Additionally, Europe lags behind the U.S. in technology spending, presenting opportunities for private equity to invest in digital transformation and innovation across traditional sectors.
Private debt, on the other hand, is gaining traction due to stricter banking regulations that limit access to traditional bank loans for small and medium enterprises (SMEs). This creates a demand for private debt as an alternative financing option. Furthermore, private debt offers investors a means to diversify their portfolios by accessing the illiquidity risk premium, providing higher yields compared to traditional fixed-income investments.
**Barriers to Growth**
Despite the promising growth, several barriers need to be addressed. Economic and geopolitical uncertainties can impact deal-making and investor confidence in the private equity sector. High competition for quality assets and potentially elevated valuations can make it challenging for private equity firms to secure profitable deals.
The private debt market faces risks associated with legacy portfolios that may have unsustainable capital structures due to previous low interest rates and high valuations. Short-term market volatility can also affect investor appetite and borrowing costs, posing a barrier to private debt growth.
**Emerging Trends**
In response to these challenges, trends are emerging that aim to capitalize on market opportunities. There is a growing focus on investing in sectors with lower cyclicality, such as medtech and cloud software, which offer stronger defenses against economic volatility. Digital platforms are enhancing efficiency and transparency in deal-making processes, reducing timelines for transactions.
The use of digital platforms is improving transparency and efficiency in connecting borrowers with investors, reducing deal timelines. Private market direct lenders are increasingly taking advantage of syndicated market volatility to provide committed financing for transactions, demonstrating the resilience of the direct lending segment.
**The European Fund Selector Study (EuroFSS) by Neuberger Berman**
The European Fund Selector Study (EuroFSS) by Neuberger Berman reveals increased demand for private market assets across Europe and the UK. Private equity leads in average allocation across Europe, particularly in the Nordics, Germany, and Switzerland. Neuberger Berman manages $515bn in global assets, with $135bn dedicated to private market strategies.
Italy leads in both awareness and adviser recommendations for European Long-Term Investment Funds (ELTIFs). Neuberger Berman recently launched the NB Private Markets Academy, an on-demand educational platform for financial advisors and investors navigating private asset allocations.
**Conclusion**
As the European private equity and debt markets continue to grow, it is essential to navigate the barriers and capitalize on emerging trends. The increasing demand for private markets is driven by the need for alternative financing solutions, opportunities for consolidation and digitalization, and the desire for diversification and higher yields. However, challenges such as geopolitical uncertainty, competition, and risks associated with legacy portfolios must be addressed. Transparency and high minimum investment thresholds are also concerns for investors. Private debt is gaining significant traction, with 47% of selectors planning to increase exposure this year, up from 19% last year, driven by diversification and high return potential.
- The European Fund Selector Study by Neuberger Berman shows that private equity leads in average allocation across Europe, particularly in the Nordics, Germany, and Switzerland.
- Neuberger Berman, managing $515bn in global assets, has $135bn dedicated to private market strategies, suggesting a focus on private equity and private debt.
- Private debt is gaining momentum, with 47% of selectors planning to increase exposure this year, up from 19% last year, showcasing its appeal for diversification and higher yields.
- The private equity sector faces challenges, such as geopolitical uncertainty, high competition for quality assets, and potentially elevated valuations, but strategies like investing in sectors with lower cyclicality aim to capitalize on market opportunities.
- Digital platforms are improving the efficiency and transparency of private market deal-making processes, reducing timelines for transactions and connecting borrowers with investors more effectively.
