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Malcolm Wren, a director in our Corporate Finance team, gives six observations on the outlook for the London Private Equity (‘PE’) market. Against the spectre of Brexit, a combination of available data and popular opinion all support London remaining the dominant financial hub in Europe.  

Despite an uncertain domestic socio-economic and political climate, corporate balance sheets in London are strong and there’s a record level of ‘dry powder’ in the PE market. Factor in PE firms’ need to put capital to work within a pre-defined investment period and everything points to sustained deal volumes and plenty of competition for attractive targets in the deals market.

1) Record fundraising levels for PE

Looking back on a year of deals, it is clear that there is a huge amount of available capital in PE in particular. The last three years have all been record fundraising years for PE, with European focussed funds raising Eur €74bn in 2016 alone, according to Invest Europe.And at the end of 2017, available capital is estimated to be 40% higher than it was at the end of 2014.  

This has been driven by a benign fundraising market fuelled by investors’ desire for yield, which they are seeking through investment in alternative asset classes, although there are signs this may now be tightening for some UK focused funds in light of Brexit. Some have recently been forced to make investments on a ‘deal by deal’ basis after they have failed to secure the necessary commitments to raise a new fund.