Published February 19, 2020
Market Commentary Dr. Florian Dillinger, Chairman of the Board of Directors of Matador Partners Group
Admittedly, 2019 was a year in which the private equity sector as a whole presented a rather mixed picture, at least in terms of its public image. This impression was mainly created by the fact that the headlines in which big names appeared in connection with private equity were mostly about the “failure” of planned takeovers. The fact that many large private equity firms were not very successful in acquiring and delisting listed companies, for example – the best known being Osram and Scout24 – almost overshadowed the many positive reports, such as those about the activities of financial investor KKR (e.g. at Axel Springer).
Overall, however, this diffuse picture only reflects the state of the industry to a limited extent. Even if the segment is considered a niche at first glance – the level of global private equity volume corresponds to only around five percent of the market capitalization of the global stock exchanges – the latest figures are quite impressive: USD 595 billion in capital was raised for 1,316 private equity funds worldwide in 2019.
The fact that alternative asset classes are attracting more and more interest from investors – and therefore also private equity – should not really surprise anyone given the still exceptional interest rate environment. This asset class offers a number of fundamental advantages – the demonstrably high, stable and therefore predictable returns are certainly the decisive factor. However, a slightly closer look away from the mainstream can also ensure extra returns for private equity in 2020.
Selection is the order of the day. Because an explicit look at individual segments provides interesting insights. This generally applies to the area of private equity secondaries. Secondaries have not only dispelled the prejudice that private equity per se is always complex and non-transparent, they have also proven that long maturities and so-called “blind pool” risks, i.e. the purchase of funds of which
one does not yet know how they will invest and develop, are not an inevitable side effect.
Against the backdrop of the latest figures, it is also worth noting that there are certainly differences between the regional markets: The capital overhang in the USA is significantly greater than in Europe. And what should be particularly interesting for our investors: There is significantly less capital overhang and far less cyclicality in the small buyout segment – in other words, precisely the segment in which Matador has focused its investments in recent years. Although the stock market listing of a secondary asset manager and the associated fungibility encourage the provider to deal sensibly with this excess capital anyway – another advantage for investors – the small buyout segment in particular should be able to play to this strength in 2020.
