Private equity managers forecast a happier 2017

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Private equity fund managers are optimistic about the industry’s performance in 2017 as they look to shake off the volatility of last year, according to a new report from BDO.

Its global poll of 200 fund managers found 71 per cent now think the investment landscape is “favourable”, compared to 56 per cent who thought so in October of last year.

2016, driven by the Trump presidency, Brexit, fluctuations in the Chinese economy and commodity price volatility, was a “challenging” one for PE managers, BDO said, but they are heading into the new year with a “more optimistic” outlook.

The Eighth Annual PErspective Private Equity Study suggests “easing economic uncertainty” across business means PE managers are mirroring optimism seen in equity and labour markets.

“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,” said Scott Hendon, partner and leader of BDO’s private equity practice.

“The economy is on the upswing, deal flow is increasing and fund managers are eager to deploy uninvested capital in the year to come.”

Other findings from the report include:

IPOs are set for a comeback – while 2016 was a “painful” one for flotations, 2017 is set to see a modest rise in IPOs with eight per cent of fund managers seeing them as lucrative exit options, up from just four per cent in October last year. “The IPO market may be heating up as 2017 gains momentum,” BDO said.

Better deal flow – fund managers expect to see improved deal flow in 2017 with 28 per cent planning to close two new platform deals this year and 25 per cent planning to invest between $10 and $29 million.
Fundraising might suffer – while confidence abounds, one area that might taper off is fundraising. 53 per cent of fund managers say they are raising new funds from limited partners, down from 64 per cent last year, 74 per cent in 2015 and 61 percent in 2014.

Tech and energy will be investment hotspots – while some analysts expect the technology and energy bubbles to burst, PE fund managers remain bullish, with two-thirds expecting to see increased valuations in these sectors in the year ahead.

“Election years always carry some degree of uncertainty for the PE community, but 2016 was a particularly contentious and volatile year,” said Dan Shea, managing director with BDO Capital Advisors and a member of BDO’s private equity practice.

“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.”

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