A renewed optimism has struck the private equity industry in 2017 following last year’s instability and political uncertainty, new research suggests.
When BDO conducted its initial survey for its eighth annual perspective private equity study last October, it said more than half of fund managers characterised the investment environment as favorable, while 44 per cent said it was unfavorable – the highest proportion since 2014.
In a follow-up poll conducted in early January, however, the number of fund managers reporting optimism jumped to 71 per cent.
BDO partner and private equity practice leader Scott Hendon said, “We believe 2016 served as something of a reset for the private equity industry, which experienced a rocky 2015.
“But as we look ahead to 2017, there is plenty of reason for optimism. The economy is on the upswing, deal flow is increasing and fund managers are eager to deploy uninvested capital in the year to come.”
BDO said that underlying this substantial growth in optimism could be easing economic uncertainty across the business landscape.
It said that the 2016 general election cycle, in conjunction with other major developments including the shockwaves of Brexit, the contraction of the Chinese economy early in the year and continued volatility in commodity prices, created significant market fluctuations throughout the year.
In October, 45 per cent of fund managers said a transition in the presidential administration was their top global political concern, followed by Brexit (19 per cent) and sovereign debt crises (14 per cent).
In the days following the election, however, markets began to stabilize, the Dow increased to record highs and the Bureau of Labor Statistics issued a solid December jobs report.
With the election over, PE fund managers appear to be mirroring the optimism reflected in the equity and labor markets, BDO said.
Dan Shea, managing director with BDO Capital Advisors and a member of BDO’s Private Equity practice, said, “Election years always carry some degree of uncertainty for the PE community, but 2016 was a particularly contentious and volatile year.
“Still, improving fund manager sentiment likely has less to do with who won the election and more with the fact that it’s over. It’s easier for fund managers to plot their strategy with such a huge unknown out of the mix.”
These findings came from the latest BDO PErspective Private Equity Study, a global survey of more than 200 private equity fund managers conducted by research firm PitchBook.
Other major findings from the BDO PErspective Private Equity Study included IPOs being poised to make a comeback.
In October, just 4 per cent of fund managers surveyed said an IPO was likely to be the most lucrative exit option in 2017.
By January, that proportion had doubled to 8 per cent, suggesting that the IPO market may be heating up as 2017 gains momentum, BDO said.
It added that this year’s survey marks the least optimistic year for fundraising since 2014, with just 53 per cent of fund managers saying they are raising new funds from limited partners.
That was down from 64 per cent last year, 74 per cent in 2015 and 61 per cent in 2014.
Family offices remain the most common source of funds, with 46 per cent of fund managers saying this investor segment provides the majority of their financial commitments. Larger firms ($501m in AUM and up) tend to skew more heavily toward pension funds, which is consistent with last year, BDO said.
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