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JTC Group finds the UK and European Private Equity market is evolving but not shrinking

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Despite higher interest rates leading to real returns being generated by bond portfolios for the first time in a decade, the UK and European private equity industry is not suffering a significant downturn prompted by investors turning to more traditional structures, according to professional services business JTC Group. 

“But that’s not to say that PE managers are not having to respond to a series of challenges,” says Marie Fitzpatrick, Senior Director at the firm. “For example, buy-out funds are becoming less popular, notably in continental Europe, and capital allocation targets are changing,” she continues.

JTC Group acted for over 250 private equity funds in 2022, and reviewing current anticipated mandates, Fitzpatrick has noted a significant shift towards new, relatively untravelled investment sectors, handled by specialist managers.

“We are seeing a new crop of private-debt orientated funds designed to meet the funding needs of middle-sized companies who are finding banks less prepared to offer lines of credit in the current financial environment. At the same time, real-estate, infrastructure and healthcare (and healthcare-tech) funds, are in vogue and PE managers are increasingly running individual teams to handle these separate classes,” Fitzpatrick adds.

“Everyone is trying to differentiate themselves at a time when it is becoming harder than ever for new managers to attract capital primarily because investors are looking for track record and are tending to re-up with managers they have worked with before. 

“Furthermore, in terms of fund size, there are fewer deals at the top of the market so average deal sizes are coming down. In part this may explain the increasing enthusiasm among managers and investors for alternative funds which currently include digital, consumer retail, and, in a couple of cases, music royalties. That said ESG focused funds, notably natural resources, and private debt seem to be this season’s big movers,” Fitzpatrick concludes.

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