Germany’s importance to grow as private equity recovers

Germany could be set to profit from the fallout of the downturn as the recovery takes hold, with an increasing number of international private equity funds likely to target the country in the coming years, according to a new report published by PricewaterhouseCoopers.

The PwC Private Equity Trend Report revealed that four in ten funds that currently have no exposure to Germany plan to start making investments there in the next five years. Already there is tangible evidence of this movement: Blackstone recently announced its intention to return to Germany, with plans to open a new office in Düsseldorf. 

The study also highlighted the newly optimistic mood in the country, with 80% of funds expecting dealflow to increase, against none that anticipate a drop-off. 

The market's popularity owes much to its relative resilience over the course of the downturn. German GPs came through the crisis relatively better-off than their international peers, with only 11% suffering a total write-off in their portfolio and less than half having to endure restructuring negotiations for an investeee business. Internationally, these rates were much higher at 16% and 54% respectively.

While not exactly evidence of stellar performance, this comparative strength goes a way to explaining the comfort most local investors with the performance of their portfolio in 2009, with only 12% stating they were dissatisfied, and more than half responding that they were satisfied.

Part of this success (if it can be so termed), can be attributed to the effect of provisions from the German government to protect businesses and jobs, particularly the ‘short-time work' initiative.

However, though the German private equity market can rightly be proud of its solidity, the same cannot be said of its environmental credentials, with German firms attaching a significantly lower priority to sustainability issues than international firms.

Less than half of German firms put sustainability high on the list of priorities when making new investments and fewer than a third have assessed their existing portfolio in this regard. This compares to 58% and 42% respectively for international funds.

Perhaps investors cannot be blamed for concentrating on economics and not the environment given the current difficulties, but ignoring such issues is itself not a sustainable ideology. There is growing public support for a movement towards a greener economy and the number of LPs that are taking note is subsequently increasing; profitability and ecology are converging in the longer-term.

To a read a Q&A with PwC's Germany head, Richard Burton, please click here.

 

 

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