Data from the first half of the year from Invest Europe, the association representing Europe’s private equity, venture capital, and infrastructure sectors, as well as their investors, shows a drop in activity amid challenging economic and market conditions.
In partnership with global management consultancy Arthur D Little, Invest Europe has also released its annual sentiment survey.
According to Invest Europe’s Investing in Europe: Private Equity Activity H1 2023 report, private equity and venture capital funds invested €32bn in the first half of 2023, 54% lower than 2022’s strong figures and in line with levels last seen in 2016. A total of 3,524 companies received backing in the first half, a more moderate 26% decline from last year, reflecting smaller average investment sizes across buyouts, growth, and venture capital.
Fundraising weakened from last year’s record level to €33bn from 370 funds, 15% below the average of the last five years. Venture capital fundraising was relatively robust and in line with levels recorded in early 2020.
Across all industry segments, investment in biotech & healthcare companies increased as a proportion of the first-half total, cementing it as a leading sector for the industry and underlining the continent’s strong reputation in innovative life sciences and pharma development. Venture capital investment slowed from the record levels registered last year, but were in line with 2019 and 2020 levels, maintaining the industry on a longer-term growth trajectory.
Invest Europe’s The Insight: State Of The European Private Equity Industry report conducted together with Arthur D Little, points to an increase in portfolio exit preparations that will crystallise strong returns for pension funds, insurance companies and other long-term investors, helping support pensions and savings for citizens.
The survey indicates that fundraising sentiment is turning a corner, while optimism about new sources of capital is growing, including the potential to democratise access to a wider group of individual investors. Environmental, social, and governance (ESG) also remains a driving force as fund managers adopt a host of actions to make the industry more sustainable and cater for rising investor expectations.
Exit preparations will be a main focus for 55 percent of GPs over the next 12 months, up 20 percentage points on last year, second only to enhanced operational improvement and support for companies.
While half of fund managers and investors expect weaker fundraising over the next 12 months, one in five expects stronger conditions – three times the number from last year. Medium-term expectations remain strong, with almost nine out of 10 LPs forecasting allocations to remain the same or increase over the next three years. Moreover, the vast majority of GPs see opportunities to market funds to high net worths, as well as “mass affluent’ clients holding over $100,000 in investible assets.
ESG is seen as a key differentiator by three-quarters of fund managers, with almost six in 10 GPs acknowledging investors’ expectations to register funds as Article 8 or 9 under the EU Sustainable Finance Disclosure Regulation (SFDR). Sustainability is a prominent focus for investment, with over half of GPs forecasting more activity in renewable energy, making it the top target sector ahead of life sciences & healthcare.
