European private markets offer unique regional and sector opportunities
A unique consortium of risks emerged across global markets in early February 2022 with geopolitical instability driving a rapid halt to 2021’s hyper cycle, and distinct spheres within European private markets reacted differently. Venture capital felt the most pain due to drops in fundraising, but later stage private equity deals also slowed dramatically as valuations grew more uncertain.
As 2023 marches ahead, European private capital is showing signs of resurgence, but is still feeling its way through the continuing macroeconomic turmoil. Key to private markets investors will be uncovering new pockets of innovation and growth that are transforming the evolving risk set into opportunities for value creation and alpha.
The migratory patterns of tech investing across Europe fueling near-term growth
The European technology investment landscape advanced dramatically over
the last several years, putting Europe and its rising market cap on the map of both US and global tech specialists. In 2021 and 2022, top US tech investors poured resources into the promise of Europe, establishing local teams and offices in sites across the region. European entrepreneurs and companies directly profited from increased investments, or tangentially have been reaping the benefits of adopting the global best practices introduced by these new players.
Despite the less certain macro backdrop in 2023, initial data is positive and showing that technology investors are staying the course with their initial investment into European markets. Digitization and digital disruption remain active in Europe with advancements in artificial intelligence and blockchain that are being applied across a range of verticals from supply chain logistics to healthcare or cybersecurity.
Fresh capital providing hope at the regional level
Private capital, which remains the backbone of economic growth, is setting a course of recovery fueled by regionally significant technical drivers. In the eurozone specifically, this includes continuing expansion into less mature markets for investing private capital such as Germany.
The fundraising environment in Germany is significantly more optimistic in 2023 than last year, but the drivers have changed. For example, at a fundraising level, initial trends show infrastructure as an asset class will play a larger role for investors, replacing historic real estate allocations over the longer period. Signs point to greater capital being invested into private equity, but education remains a priority in these new pockets of interest where LPs are not as familiar with risk/return profile of private equity or other private markets strategies.
In Germany, as in more mature markets, the face of fundraising is evolving due to the more uncertain landscape of private equity valuations. While investors remain committed to the potential outperformance of private equity as an asset class, they are being more selective according to the underlying quality aspects of the company. Quality and established track record through various business cycles has become more important than ever, and it’s opening doors for fund of funds managers with long-term experience and access to high quality GPs with solid revenue drivers and cash flows.
Key takeaways
While a constellation of challenges took shape in 2022, European private capital is coalescing around those risks in 2023 with innovation and capital focused on developing real-time solutions to today’s most urgent questions. While the recovery will likely be more targeted against regionally specific risks than prior cycles, private capital across all strategies remains resilient.
HarbourVest is an independent, global private markets firm with 40 years of experience and more than $106 billion assets under management as of December 31, 2022. Our interwoven platform provides clients access to global primary funds, secondary transactions, direct co-investments, real assets and infrastructure, and private credit. For more information visit www.harbourvest.com.
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