KfW: Equity Market Continues to Zigzag
OREANDA-NEWS. January 28, 2013. The German Private Equity Barometer is continuing its zigzag course. After declining in the second quarter and recovering in late summer of 2012, it dropped again in the last quarter, this time sharply. The business climate index for the German private equity market, which is calculated jointly by the BVK, the German Private Equity and Venture Capital Association, and KfW for Handelsblatt, Germany's financial daily, dropped by 9.8 points to close at 32.5 points, almost 4 points lower than the long-term average. However, the economic revival expected for this year gives cause for cautious optimism over the further development of the market. It can be assumed that private equity firms will also be able to benefit once the economy starts picking up again.
The renewed decline of the German Private Equity Barometer in the fourth quarter of 2012 was mainly caused by a drop in sentiment among later stage investors (-16.2 points to 29.4 points). They deplore higher entry prices and a renewed deterioration in exit opportunities, and they fear increasing write-downs. Both the sub-indicator for the current business situation and the indicator for future business expectations have dropped in this market segment – with much more pessimistic expectations for the future (-20.1 points) than for the present (-12.3 points).
In the early stage segment, the combination between a slight deterioration in the assessment of the current situation (-2.1 points) and a slight increase in business expectations (+1.4 points) has kept the relevant overall indicator almost unchanged (-0.4 points at 36.9 points).
The positive business expectations give reason to hope that the early-stage segment of the private equity market might stabilise further. The forecast is for continuing high demand for venture capital, high-quality investment proposals, positive entry prices and good exit opportunities. In addition, fund managers appear to be in greater demand again in the job market and early stage investors are thus complaining about recruitment problems – a further sign that the market is recovering.
BVK Managing Director Ulrike Hinrichs is particularly pleased with the stable mood and the positive outlook in the early stage segment. "Despite challenges in fundraising and exits, venture capital investors are looking to 2013 as a year of opportunities. It is the numerous investment options in the German innovation and start-up landscape that are boosting early stage investors' confidence. In contrast, the late stage investors' more cautious assessment reflects the inconsistent forecasts for the European and global economy. In the late stage segment, portfolio companies are much more strongly dependent on the performance of the global economy and exports."
Dr Jorg Zeuner, Chief Economist of KfW Bankengruppe, assesses the results of the current German Private Equity Barometer as follows: "The private equity investors' positive assessments for the early stage segment are encouraging, but unfortunately, considering the overall assessment of the industry, this is not yet reason to celebrate. We expect the economy to develop more positively in 2013 than late stage investors expect, so we expect the coming months to provide positive signals for this market segment as well."
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