Private capital to drive future growth despite economic headwinds
Under the theme of reality check delegates attending IPEM 2023 took over Cannes again in January to discuss the private capital landscape.
The macroeconomic headwinds were front of mind at the last meeting in September, but economic turbulence has accelerated since then, with the rise of inflation and interest rates, and the slowing down of growth. As the industry adjusts to a new year, where economic disruption is predicted to continue, IPEM came at a momentous time to discuss how alpha can be generated in the months ahead.
According to LPs, the micro matters even more in a difficult macro setting. Manager selection remains the biggest risk for investors, however GPs with better operational expertise truly show their role and value in difficult times. For managers wanting to succeed, sector expertise remains an incredibly important differentiation technique. Investors agreed that the focus needs to be on long-term trends, as they’re less likely to fluctuate in the short term, however managers also need to have the ability to assess what the next generation of opportunities will be.
So is it all doom and gloom?
Despite the challenging outlook for fundraising and exiting, positive expectations remain for deal-making and capital deployment. Attention is increasingly paid to what some describe as ‘unstoppable mega trends’, namely sustainability and digitisation. We’re still in the early stages, and LPs need convincing that climate tech investors can generate the same returns as mainstream investors, but with an increasing determination to reach sustainability goals, climate tech is predicted to become the mainstream in the years ahead.
IPEM survey shows investor caution and focus on value creation
The findings of the 5th Annual IPEM Private Equity Pan-European Survey, supported by the BVCA and other trade associations, were also launched during the conference. The survey, which provides a snapshot of the current sentiment in private capital, found the outlook for 2023 more cautious than in previous years, with 48% of respondents expecting to deploy less capital than in 2022 and nearly three quarters of respondents seeing fewer exit opportunities in the coming year.
This sentiment has led to a renewed focus on value creation within existing portfolio companies, with ESG and talent management being the top internal priorities. The climate emergency also featured heavily, with 70% of respondents believing that the private capital industry can provide serious answers to climate issues, and 67% revealing that some or most of their portfolio companies have already set net zero carbon targets.
Looking forward
As ever, I left the south of France feeling inspired that private capital is providing solutions to some of the biggest challenges of our times. The industry is constantly innovating, continuously finding the lucrative opportunities of the future, while also paving the path to Net Zero. At the BVCA we will continue to promote the accomplishments of our members to ensure that these messages are heard loud and clear by our stakeholders.
The BVCA led conference sessions on the macro trends to watch, international perspectives on diversity and inclusion, and met with members through panel discussions and meetings over the 3-day event.
Denise Typl
Membership Manager, BVCA
