European banks hold an estimated €100 billion of private equity assets that they will feel pressure to sell to meet capital requirements, according to Elly Livingstone, a partner at Pantheon International Participations (PIP), a private equity fund of funds.
In addition, many European insurers are expected to sell private equity assets after the incoming Solvency II regime makes these assets more expensive to own. And European regulators are discussing similar legislation for pension schemes, which are the largest holders of private equity assets.
This means next year will be busy for buyers of secondary private equity assets, said Livingstone, who specialises in secondary investment.
He said there is even the possibility of a “glut” of secondary assets on the market. This could happen if regulators take a strict view of risk concerning private equity investments and trigger widespread selling from pension schemes. PIP is one of a number of parties lobbying regulators not to take a strict view.
Cattegatt Capital, a secondaries broker that deals with private equity and other alternatives, also predicted a buoyant secondary market.
“The supply side will be driven by continuous needs to meet capital requirements as well as internal strategic changes among asset managers,” said Lars Lindqvist, founder and CEO. “On the demand side you have an unprecedented number of secondary funds eager to deploy cash, low valuations and large corporate cash balances, which stimulate pricing.”
However, Lindqvist added that there would be a “whole new scenario” if there was an economic meltdown, such as a collapse of the euro.
Lindqvist said the secondary market for private equity is more stable than the secondary market for hedge funds, which, barring an economic meltdown, he expects to reduce in size.
©2011 funds europe