MARKET OUTLOOK AND TRENDS Dörte Höppner Chief Executive, Invest Europe Frankfurt, 8 June 2016
Invest Europe Overview
We are the voice of European private equity. We create a more favourable environment for equity investments and entrepreneurship.
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Private Equity s role in Europe s economy 5
It is a low-yield environment 10-year Government Bond Yield (%) Source: National Central Banks, Haver Analytics 6
and public markets are under pressure SX5E:IND = Euro Stoxx 50 CCMP:IND = NASDAQ UKX:IND = FTSE 100 INDEX COMPOSITE INDEX DAX:IND = DAX INDEX SPX:IND = S&P 500 INDEX SHSZ300:IND = CSI 300 INDEX NKY:IND = NIKKEI 225 Source: Bloomberg 7
Summary Private equity of returns UK Equity in comparison performance versus principal comparators 12.9 11.1 11.5 10.3 9.4 8.7 14.9 7.8 7.6 Three years Five years Ten years Source: BVCA Total Private Equity Total Pension Funds Assets (WM PFU) FTSE All -Share
Investments by portfolio company size All PE funds VC funds Buyout funds Growth funds 14.1% 9.8% 48.5% 26.4% 22.2% 11.1% 25.9% 68.8% 16.6% 21.1% SME: 85.9% SME: 98.7% SME: 54.7% SME: 81.9% Full-time equivalent staff by interval SMEs 0-19 20-99 100-199 200-249 250-499 500-999 1000-4999 5000+ Source: Invest Europe / PEREP_Analytics 9
Positive economic impact 346bn Invested into European companies since 2007* 83% Invested in SMEs* 50% Less likely to fail than similar non-pe-backed companies** 7-8million estimated jobs are provided by European private equity-backed companies since 2007* > 25,000 Companies received private equity and venture capital investments since 2007 4.5-8.5% Improvement in performance in the first three years** 75% Source: Invest Europe/ PEREP_Analytics; ** = Frontier Economics *** = Kaserer (2011) 10
Market outlook and trends
Overview - All Private Equity - Fundraising, Investments & Divestments billion 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Funds raised Investments Divestments Source: Invest Europe / Thomson Reuters (2000-2006) & Invest Europe / PEREP_Analytics (2007-2015) 12
2015 Fundraising at a glance ( bn) 54.4 48.0 47.6 bn 41.6 24.6 Other (2) Growth Buyout Venture Capital 2011 2012 2013 2014 2015 Source: Invest Europe / PEREP_Analytics Note: (2) Other includes Mezzanine and Generalist funds 13
All Private Equity Funds raised by region of management and investor type 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% UK & Ireland DACH Nordics France & Benelux Southern Europe CEE Sovereign wealth funds Pension funds Insurance companies Government agencies Fund of funds & Other asset managers Family offices & Private individuals Corporate investors Capital markets Banks Source: Invest Europe / PEREP_Analytics DACH: Austria, Germany, Switzerland / Southern Europe: Greece, Italy, Portugal, Spain / Nordics: Denmark, Finland, Norway, Sweden / CEE: Central Eastern Europe 14
Funds raised by type of investor in 2015 All PE funds VC funds Buyout funds Growth funds 5% 8% 13% 5% 14% 7% 7% 11% 9% 4% 15% 7% 4% 7% 11% 3% 22% 5% 9% 14% 12% 31% 12% 4% 25% 3% 10% 8% 14% 82% 274 funds / 207 firms 98 funds / 82 firms 90 funds / 77 firms 38 funds / 26 firms Academic institutions Banks Capital markets Corporate investors Endowments and foundations Family offices Fund of funds Government agencies Insurance companies Other asset managers Pension funds Private individuals Sovereign wealth funds Source: Invest Europe / PEREP_Analytics 15
All Private Equity - Fundraising by LP geography North America 2015: 21% (2014: 28%) Europe 2015: 55% (2014: 54%) Australia/Asia 2015: 16% (2014: 11%) Rest of world 2015: 3% (2014: 2%) Unclassified Europe 2015: 6% (2014: 5%) 16
2015 Investments in Europe at a glance 2,836 bn 44.9 36.8 36.3 41.8 47.4 1 6 36 Other - Amount Growth - Amount Buyout - Amount VC - Amount 1,108 Buyout - No. of companies Growth - No. of companies 944 VC - No. of companies 2011 2012 2013 2014 2015 4 Source: Invest Europe / PEREP_Analytics Note: Other includes Rescue/Turnaround and Replacement capital 17
Buyout Investments in Europe by equity bracket billion 40 35 36 32 37 30 29 28 25 20 15 10 Mega (> 300m) - Amount Large ( 150m - 300m) - Amount Mid-market ( 15m - 150m) - Amount Small (< 15m) - Amount 5 0 2011 2012 2013 2014 2015 Source: Invest Europe / PEREP_Analytics 18
14,000 million All Private Equity 2015 Investments by amount 12,000 10,000 8,000 6,000 4,000 2,000 - Source: Invest Europe / PEREP_Analytics 19
All Private Equity 2015 Investments as % of GDP 0.7% 0.63% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% 0.50% 0.50% 0.48% 0.45% 0.38% 0.38% 0.34% 0.32% 0.31% 0.30% 0.22% 0.22% 0.19% 0.16% 0.15% 0.15% 0.14% 0.14% 0.13% 0.12% 0.09% 0.09% 0.09% 0.06% 0.03% 0.02% 0.02% 0.02% 0.01% Source: IMF, World Economic Outlook Database (GDP) / Invest Europe / PEREP_Analytics 20
All Private Equity - European Economic Area (EEA): Geographic investment flows in 2015 Outside EEA 3.3bn Outside EEA private equity firms investing in portfolio companies inside EEA EEA 13.1bn Cross-border investments within EEA 31.0bn 3.2bn Inside EEA private equity firms investing in portfolio companies outside EEA Domestic investments within EEA countries
Investments by top five sectors in 2015 All PE Buyout Venture Growth Business & industrial products Consumer goods & retail 16% 14% Business & industrial products Consumer goods & retail 18% 15% Life sciences Computer & consumer electronics 20% 34% Communications Energy and environment 17% 14% Life sciences 12% Financial services 12% Communications 19% Consumer goods & retail 13% Computer & consumer electronics Financial services 11% 10% Life sciences Computer & consumer electronics 11% 10% Consumer goods & retail Consumer services 7% 6% Computer & consumer electronics Life sciences 12% 9% Source: Invest Europe / PEREP_Analytics 22
2015 Divestments at a glance 39.6 billion Divestment by trade sale: 29% Sale to another PE firm: 27% Public offering: 23% Sale to financial institution: 10% Divestment by write-off: 4% Repayment of principal loans: 4% Sale to management (MBO): 2% Divestment by other means: 1% Source: Invest Europe / PEREP_Analytics 23
GERMANY
Fundraising in Germany ( bn) bn 3.3 0.5 2.8 0.3 0.3 2.0 1.2 1.5 1.3 1.6 0.2 1.6 0.3 0.7 0.4 1.4 0.9 0.4 0.6 0.7 2011 2012 2013 2014 2015 Other (2) Growth Buyout Venture Capital Total Source: Invest Europe / PEREP_Analytics Note: (2) Other includes Mezzanine and Generalist funds 25
8 bn Investments in Germany ( bn) 7 6 5 4 3 2 1 0 6.7 6.6 0.6 0.7 5.1 5.3 5.1 0.4 3.9 0.7 0.6 0.7 0.7 0.8 2011 2012 2013 2014 2015 Source: Invest Europe / PEREP_Analytics Note: Other includes Rescue/Turnaround and Replacement capital 7.1 0.7 5.6 6.6 0.8 4.8 761 418 120 On average 6.4bn invested a year in 1,300 1,400 portfolio companies in Germany 1,200 1,000 800 600 400 200 0 Other - Amount Growth - Amount Buyout - Amount VC - Amount Total - Amount Buyout - No. of companies Growth - No. of companies VC - No. of companies 26
2015 Divestments in Germany Write-off 6% Repayment of silent partnerships 2% Sale to management 1% Sale to financial institution 7% Repayment of principal loans 8% Sale to another private equity firm 33% On average, at cost 5.7bn divested a year from portfolio companies in Germany Public offering 21% Trade sale 22% Source: Invest Europe / PEREP_Analytics 27
POLICY UPDATE EU & INTERNATIONAL DEVELOPMENTS
An uncertain political environment
New issues and a fragile consensus 2010 to 2015 2015 Bank bail-outs & sovereign debt crisis Weak growth & high unemployment Financial market stability dominates Broad consensus for EU action Migration & security issues rise in importance Rise of anti-eu and/or populist sentiment 30
New priorities a growth-focused agenda CAPITAL MARKETS UNION Increasing and diversifying sources of funding (including private equity) Improving access to financing for businesses across Europe (in particular SMEs) Making markets work more effectively and efficiently across borders Removing barriers to cross-border investment within the EU Fostering stronger connections with global capital markets 31
New concerns THE BREXIT DEBATE Impact on current EU negotiations Uncertainty about future UK-EU relationship Specific risks for private equity industry 32
New concerns TAX AVOIDANCE & PLANNING 33
Challenges and objectives for the year to come
Increased importance of technical standards Level 1 POLITICAL RULEMAKING Level 2 TECHNICAL RULEMAKING EU-level oversight DAY-TO-DAY SUPERVISION Rules on smaller fund managers 35
New regulatory changes in coming years CAPITAL MARKETS UNION Action Plan published BEPS works shifts to EU arena Consultation on CROSS- BORDER BARRIERS for investment funds CCCTB PROPOSAL AIFMD review Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 2017 2018 PROSPECTUS Regulation TODAY DG Justice Report ON REMUNERATION EUVECA II AIFMD third country passport (ESMA report) SOLVENCY II Review of risk-weights 36
A lot done, a lot still to do AIFMD Remuneration Fees & charges AIFMD II Achievements Avoided revision of proportionality principle in AIFMD Guidelines Removal of the French paying agent requirement Launched a RfP to assess the impact of the current proposal Objectives Gather evidence ahead of future developments (incl. upcoming DG Justice Report) Respond to consultation on crossborder barriers of investment funds Continue preparatory work ahead of the review (2017) 37
A lot done, a lot still to do VENTURE CAPITAL EuVECA VC Funding Achievements Review of Regulation with objective of encouraging more fund managers to opt in Commission commitment to establish a public-private VC fundof-funds Objectives Broader scope that allows more AIFMD sub-threshold fund managers to benefit Support fund-of-funds managers to respond to the forthcoming request for proposals 38
A lot done, a lot still to do INSTITUTIONAL INVESTORS Insurance Pension funds Banking Achievements Obtained lower risk-weight (30%) for infrastructure Convinced the Comission to reassess private equity prudential treatment No risk-weights for private equity in IORP Directive Delayed and influenced Banking Structure proposal compromises Objectives Ensure rule applies to all types of infrastructure corporates Commission independent analysis of appropriate risk model Minimise impact of EIOPA work on Holistic Balance Sheet Ensure private equity assets are deemed less risky in CRD 4 review 39
A lot done, a lot still to do TAXATION BEPS FTT Achievements Delay to OECD work on BEPS treaty abuse to find suitable solution for AIFs Putting investment fund neutrality & SME exemption on the table in FTT negotiations Objectives Ensure the final international standard does not disadvantage private equity funds Ensure any FTT does not have a disproportionate impact on private equity funds 40
Revised Professional Standards 2015 Invest Europe Handbook An efficient one stop reference for all aspects of Professional Standards, bringing together the key elements of governance, transparency and accountability. Updated regularly to ensure the Handbook remains in line with current market practice OBJECTIVES OF THIS YEAR S REVIEW: Reflect changes in the European regulatory framework surrounding the industry, including the AIFMD Take into account recent market developments, e.g. in the field of RI and ESG practices Address current industry issues, such as fees and transparency Improve existing guidance and to tighten drafting ( evolution not revolution ) 41
The Handbook also includes THE CORE FINANCIAL RECOGNITION, VALUATION AND REPORTING REQUIREMENTS IN THE FORM OF THE IPEV VALUATION GUIDELINES (WHICH ARE ENDORSED BY INVEST EUROPE) AND THE INVEST EUROPE INVESTOR REPORTING GUIDELINES Driven by the Working Group on Accounting Standards, Valuation and Reporting, the recent review of the Reporting Guidelines focused on: Catch up on evolution of accounting reporting standards and enhanced clarity on reporting metrics Increase transparency Address areas of non-financial disclosure including fee calculation, ESG and conflicts SUPPLEMENTARY GUIDANCE FOR PLACEMENT ADVISERS Currently being updated - review exercise driven by a special working group combining placement adviser representatives and members of the PSC Final version expected in the autumn of 2016 OTHER GUIDANCE (NOT IN THE HANDBOOK): A GP ESG DDQ, produced by the Responsible Investment Roundtable and aimed at GPs to use with their portfolio companies/ investments 42