Private Equity Fund Managers Expect a Sunnier 2017 after Volatile 2016

Economic

Deal Flow Set to Improve and IPOs to Make a Comeback

Last year proved to be a challenging year for the private equity (PE) industry as market instability and political uncertainty took hold worldwide. But 2017 has ushered in a more optimistic outlook, according to BDO’s Eighth Annual PErspective Private Equity Study, a survey of more than 200 fund managers across North America and Western Europe.

When the initial survey was conducted in October 2016, more than half (56 percent) of fund managers characterized the investment environment as favorable, while 44 percent said it was unfavorable—the highest proportion since 2014. In a follow-up poll conducted in early January, however, the number of fund managers reporting optimism jumped to 71 percent.

“We believe 2016 served as something of a reset for the private equity industry, which experienced a rocky 2015. But as we look ahead to 2017, there is plenty of reason for optimism. The economy is on the upswing, deal flow is increasing and fund managers are eager to deploy uninvested capital in the year to come,” says Scott Hendon, partner and leader of BDO’s Private Equity practice.

Underlying this substantial growth in optimism may be easing economic uncertainty across the business landscape. The 2016 General Election cycle—in conjunction with other major developments, including the shockwaves of Brexit, the contraction of the Chinese economy early in the year and continued volatility in commodity prices—created significant market fluctuations throughout the year. In October, 45 percent of fund managers said a transition in the presidential administration was their top global political concern, followed by Brexit (19 percent) and sovereign debt crises (14 percent).

In the days following the election, however, markets began to stabilize, the Dow increased to record highs and the Bureau of Labor Statistics issued a solid December jobs report. With the election over, PE fund managers appear to be mirroring the optimism reflected in the equity and labor markets.

“Election years always carry some degree of uncertainty for the PE community, but 2016 was a particularly contentious and volatile year,” adds Dan Shea, managing director with BDO Capital Advisors and a member of BDO’s Private Equity practice. “Still, improving fund manager sentiment likely has less to do with who won the election and more with the fact that it’s over. It’s easier for fund managers to plot their strategy with such a huge unknown out of the mix.”

These findings are from the BDO PErspective Private Equity Study, a global survey of more than 200 private equity fund managers conducted by PitchBook, an independent and impartial research firm dedicated to providing premium data, news and analysis to the private equity industry. 

Private Equity Fund Managers Expect a Sunnier 2017 after Volatile 2016