Big funds drive first-half European fundraising to eight-year high

There was no slowdown in investors committing money to European or UK-based private equity firms in the first half of 2016, with 31 European private equity funds raising over $ 25.38 billion for buyout strategies – the strongest first-half total since 2008, according to Dow Jones LP Source.

Overall, Europe-focused private equity funds including venture capital, mezzanine, secondaries and co-investments strategies, raised $ 67.13 billion in the first half of the year, also the strongest overall half since 2008.

The numbers were given a major boost by a clutch of European mega-buyout funds that returned to the market in 2016. Firms including Apax Partners, Astorg Partners and Cinven all closed on capital for multibillion-dollar funds in the first half of the year, with Apax and Cinven amassing a total of more than $ 15 billion between them.

The record fundraising was driven by the strong distributions that investors have received from European private equity firms in the past two years, with investors eager to recommit that cash to new funds. Data provider Preqin found that Europe-based private equity funds had distributed $ 126 billion to investors from 2013 to June 2015, according to a report in May.

But the largest players weren’t the only ones that drove fundraising during the first half. A host of small and mid-market funds focused on niche strategies, single countries or narrow regions within Europe also found favour with investors. They include UK-focused Bridgepoint Development Capital, Benelux-focused Bencis Capital Partners and Utrecht-based healthcare firm Gilde Healthcare Partners.

Like their buyout counterparts, European venture funds also enjoyed a strong first half, with 45 funds closing on $ 5.4 billion, up from $ 3.38 billion across 47 funds during the same period a year ago and the highest dollar volume closed during a first half-year since 2008. Funds targeting early-stage investments accounted for $ 2.76 billion of the first-half total, including a $ 500 million European fund raised by the London affiliate of US venture firm Accel Partners and a $ 550 million fund raised by Geneva-based Index Ventures.

Despite the strong first half, uncertainty caused by the UK’s decision to exit the EU has left more investors cautious about whether Europe’s fundraising roll can continue.

Executives said UK-focused funds could be particularly hard hit by Brexit, as international investors pause commitments to figure out the impact of the vote on portfolio companies.

“I do expect a bit of slowdown in fundraising activity for UK managers,” said Paul Newsome, head of investment management within the private equity team at investor Unigestion. “Because deal activity will drop, some firms will make fewer investments and will therefore not need to raise their fund so soon. Managers that thought they were ready to raise in [the fourth quarter] may delay it until next year.”

The situation isn’t helped by the drop in the value of the pound, which means that many international investors will see the value of their holdings in sterling-denominated funds fall. However, sterling-denominated funds made up only around 10% of all the money raised in the first half of the year, according to LP Source.

Christophe Bavière, chairman of European small and mid-market investment firm Idinvest Partners, said “there will be a short-term effect” on European fundraising.

“No doubt, if you are a UK-based mid-market player, it is bad news for you. The next few months of fundraising will not be the best,” he said.

Bavière added that over the longer term, European mid-market fundraising would bounce back given the overall long-term demand for European funds.

“Have you ever met one investor who is overallocated to the European mid-market? I have never met one,” he said.

– Yolanda Bobeldijk contributed to this article

Write to Becky Pritchard at becky.pritchard@wsj.com

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