OREANDA-NEWS. August 6, 2012. After a temporary recovery in the two preceding quarters, the business climate on the German private equity market declined sharply in the 2nd quarter 2012. The German Private Equity Barometer (GPEB), the business climate indicator for the German private equity market jointly measured by BVK (Association of German Private Equity and Venture Capital Firms) and KfW for the German newspaper Handelsblatt, fell markedly by 19.4 points to 23.4 points and is now clearly below its historic average of 35.9 points. This is the second largest decline of the barometer since it was first conducted in 2003.

The market participants surveyed in the context of the GPEB especially blame macro-economic conditions for the decline. The demand for private equity and the quality of proposals received by market participants surveyed are rated as very good, but these factors are not sufficient to compensate for the negative influence of the economic framework conditions on the business climate.

The business climate in the early-stage market dropped by 20.9 points to 23 points. Venture capital providers are considerably more pessimistic about both the current situation (-20 points) and the expectations for the next sic months (-21.9 points) than in the previous quarter. The business climate index for private equity companies in the later-stage segment declined by 18.4 points to 23.7 points. In this segment, the assessment of the current situation fell by 5.1 points to 29.2 points. The decline is even more serious with regard to business expectations, which went down 31.7 points to 18.1 points.

In both market segments (early stage and later stage) - besides the worsening assessment of the economic development and the downward trend in the stock market - in particular the bad fund-raising situation had a negative impact on private equity investors' sentiment. Moreover, the exit situation in the later stage segment deteriorated substantially.

BVK Managing Director Ulrike Hinrichs comments on this development: "Private equity firms continue to see strong demand for venture capital from interesting companies, and attractive, fast-growing business start-ups and SMEs still receive financing. However, the overall economic outlook for Europe and the continuing debt crisis in Europe have a decisive impact on the sentiment in the private equity market. In addition, firms are confronted with a considerable deterioration in the fundraising situation and exit possibilities. This cannot be compensated for by factors such as the cyclical economic development in Germany, which is still positive in European comparison. Private equity managers are sensitive to such scenarios of uncertainty.“

Dr Norbert Irsch, Chief Economist of KfW Bankengruppe, comments: „The decline in sentiment in the German private equity market was not foreseeable to this extent: It reflects the cyclical cooling-off, which is now clearly being felt in Germany as well due to the aggravating recession in the economies on the Euro periphery, as well as the disappointing development in the stock market. The volatility in the private equity market has also increased since the beginning of the Euro crisis. This is a clear sign of the growing uncertainty and makes medium-term planning much more difficult for investors, venture capital managers and companies. EU politics is urgently requested to undertake everything necessary to calm down markets, and thus to improve the basis for medium and long-term investments.“