The IPEM Private Equity Conference was a significant gathering, uniting more than 6000 decision-makers, limited partners, and general partners from over 50 countries in Paris last month. Paris continues to be Europe's foremost hub for private markets, with $2.6 trillion in assets under management and over $10 trillion in institutional capital. This underscores the city's significance in the private equity landscape and sets the stage for key discussions under the theme "Destined to Outperform" Here, we present key takeaways from the two-day conference:
- Private Equity Dominates LP Investment: Despite rising debt costs, falling valuations and difficult fund-raising, the Private Equity and Venture Capital industry is looking ahead. Private Equity remains the top asset class for Limited Partners, with 42% targeting it strategically. This is followed by private debt (22%), venture capital (18%), and real assets (15%).
- Buyouts Rule Private Equity: Among private equity segments, buyouts are the most favored by investors. For venture capital, late-stage/growth investments take the lead, preferred by over 38% of respondents, closely followed by early-stage ventures (32%).
- Private Debt Offers Attractive Returns: Private debt has emerged as an attractive asset class, with the potential to yield returns of 10-12%. This is mainly due to the pressure on inflation and high interest rates. Modern infrastructure investments, including Clean Power, Data Storage & Services, New Mobility Infrastructure, Water Sustainability, and Critical Supply-chain, have also gained financial significance.
- Megatrends Driving Change: The conference highlighted several megatrends influencing the private equity and venture capital industry. Most notable were Digitalization, New Living, and Sustainability. Notably, technology and innovation are rapidly advancing, From an industry perspective, technology and innovation are moving fast with a surge in Artificial Intelligence offerings in sectors like Healthcare, Mobility, and Energy.
- ESG and Sustainability: Private equity and venture capital investments in European traditional and renewable energy companies saw substantial growth in 2022. ESG is considered as a dynamic system that can generate returns. Across sectors, sustainability and climate-related investments become a priority with new expectations of measuring performance and returns. It has never been more critical to deliver a genuine impact on the environment.
- Focus on Performance and Value Creation: At a macro level, LPs value performance above all as well as the consistency of returns and performance when selecting a fund to invest in. In the current challenging market conditions, private equity and venture capital stakeholders are emphasizing operational excellence within their portfolio: “Streamlining operations, optimising supply chains, and enhancing leadership, culture, and workforce capabilities become critical avenues for generating value” stated Catherine Sherwin, Partner and Managing Director at Alix Partners during her presentation, this implies harnessing “cutting-edge solutions that can unveil opportunities for growth and profitability”.
- Industry at a Pivotal Juncture: While private markets continue to strive for long-term outperformance, the private equity industry is undergoing significant disruptions. LPs and GPs face a web of complex challenges and opportunities due to impactful geopolitical dynamics, societal changes, and macroeconomic transformations. As Steffen Meister, Executive Chairman of the board of Partners Group aptly pointed out: “We are at the beginning of the biggest and fastest ever recalibration of investment context” with impactful geopolitical dynamics, societal changes, macro and micro economy transformations, the recalibration will trigger challenges but unprecedented opportunities. “You cannot invest in agility; you must build agility. Agility is the new resilience.”
In summary, the IPEM Private Equity Conference highlighted the resilience and adaptability of the private equity and venture capital industry, even in challenging market conditions. Private equity remains a favored asset class, and the focus on ESG, sustainability, and operational excellence is shaping the industry's future. The industry is at a pivotal juncture, and staying agile is key to navigating the evolving landscape successfully.