Sentiment collapses on the private equity market
Frankfurt am Main (ots) -
- Sentiment among late and early-stage financiers deteriorates in the first quarter - However, prospects for market growth remain good
Sentiment on the German private equity market has cooled significantly. The German Private Equity Barometer's business climate index fell 14.3 points to 45.4 balance points in the first quarter of 2016. The indicator for both segments of the market was down on the previous quarter, when a slump in the climate for the early-stage segment was offset by a peak in the climate for the late-stage segment. Equity investors are more pessimistic about their current business situation (-11.3 points to 50.8 balance points) and their expectations for the future (-17.3 points to 40.0 balance points).
The sentiment indicator has really taken a nose-dive in the early-stage segment, falling again in the first quarter (-15.1 points to 32.0 balance points) so that it is now below its long-term average. A slump of this severity has only ever been seen once before in the first half of 2008, shortly before the onset of the financial crisis. Early-stage financiers are taking a much dimmer view of both their current business situation and their expectations for the future. The indicator for the current business situation has fallen 17.0 points to 33.3 balance points, while the indicator for business expectations is down 13.2 points to 30.7 balance points. Compared with the previous quarter, when the decline in sentiment was not reflected in the evaluation of the underlying conditions, some of the climate indicators in the early-stage segment have now also deteriorated - although most have not fallen as sharply as the business climate. The fundraising climate, for example, remains at a very good level despite falling sharply from its record high. There has also been a rapid deterioration in the climate for IPOs.
There was a sea change in the climate among late-stage financiers in the first quarter. The business climate indicator fell 12.8 points to 54.6 balance points, even though this is still a good level and above the long-term average. Late-stage financiers are also revising their assessments of both their current business situation and their expectations for the future downwards. The indicator for the current business situation has fallen 6.5 points to 62.7 balance points, while the indicator for business expectations has seen a sharper fall of 19.1 points to 46.4 balance points.
Despite the decline in the business climate on the private equity market in the first quarter, Dr Jörg Zeuner, Chief Economist at KfW Group, remains optimistic about the trend for the rest of the year: "Sentiment on the market is currently worse than we would expect based on the evaluation of the underlying conditions. We assume, however, that the favourable underlying conditions will eventually hold sway and the muted sentiment at present will not make venture capital investors less willing to invest in the long term. We see no reason why this should be the case," said Zeuner.
Ulrike Hinrichs, Executive Board Member of the BVK (German Private Equity and Venture Capital Association), is also optimistic: "The willingness to invest is there. The experiences of last year have also shown that sentiment can quickly turn positive over the course of the year. Any relaxation in the very high valuations or successful exits would boost sentiment in the sector at a single stroke. The recent announcement by the German Federal Ministry of Finance that no venture capital act will be introduced in the current round of legislation came as a disappointment for our venture capital investors, however. We were all hoping for a real improvement following the many political commitments of recent years."
KfW calculates the German Private Equity Barometer exclusively for the Handelsblatt together with the Bundesverband deutscher Kapitalgesellschaften e.V. (BVK; German Private Equity and Venture Capital Association). You can find a detailed analysis with a spreadsheet and graph for the latest German Private Equity Barometer at www.kfw.de/gpeb.