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Private equity H1 2023 activity weakens as industry survey shows tentative signs of optimism and exit preparations

Invest Europe, the association representing Europe's private equity, venture capital, and infrastructure sectors, as well as their investors, today published data for the first half of 2023 that shows a drop in activity amid challenging economic and market conditions. In partnership with global management consultancy Arthur D. Little, Invest Europe also released its annual sentiment survey that tells the story behind the statistics, highlighting preparations for exits that will feed distributions to long-term investors, as well as the drive to higher sustainability standards, and plans to open the asset class to new investors.

Invest Europe's "Investing in Europe: Private Equity Activity H1 2023," provides a detailed analysis of private equity and venture capital fundraising, investment, and divestment across Europe in the first half of the year, illustrating the effects of high inflation and interest rates, slowing economic growth, constricted financing markets, and uncertain geopolitical conditions.

Across all industry segments, investment in biotech & healthcare companies increased as a proportion of the first-half total, cementing it as a leading sector for the industry and underlining the continent's strong reputation in innovative life sciences and pharma development. Venture capital investment slowed from the record levels registered last year, but were in line with 2019 and 2020 levels, maintaining the industry on a longer-term growth trajectory.

While the activity data provides insight into the impact of challenging market conditions on private equity and venture capital in the first half of the year, Invest Europe's "The Insight: State Of The European Private Equity Industry," conducted together with Arthur D. Little, gives a forward-looking view of industry expectations over the short- and medium term.

The results highlight the effects of ongoing economic uncertainty and market disruption on both GPs and LPs. However, the findings also point to an increase in portfolio exit preparations that will crystallise strong returns for pension funds, insurance companies and other long-term investors, helping support pensions and savings for citizens. The survey indicates that fundraising sentiment is turning a corner, while optimism about new sources of capital is growing, including the potential to democratise access to a wider group of individual investors. Environmental, social, and governance (ESG) also remains a driving force as fund managers adopt a host of actions to make the industry more sustainable and cater for rising investor expectations.

Jonas Fagerlund, Partner at Arthur D. Little, said: "Fund manager and investor expectations reflect the ongoing challenges facing the industry and the economy more broadly. However, they also point to tentative signs of optimism. More exit preparations could signal an increase in distributions that would, in turn, stimulate fundraising and new investment. Moreover, medium-term investor appetite remains positive, indicating that private equity will hold an important place in portfolios, whatever the conditions."

Eric de Montgolfier, CEO of Invest Europe, commented: "Conditions are as challenging as they have been at any point since the financial crisis. Nonetheless, the industry is resilient and adaptable. Fund managers are clearly supporting companies through volatile markets while making preparations for the future, not only in terms of increased activity, but also in sustainability, with greener funds for long-term investors, as well as new vehicles that can bring the benefit of private equity and venture capital returns to a wider group of individuals."

To access the H1 Private Equity data, visit: https://tinyurl.com/5f8jt9ea

To access The Insight: State Of The European Private Equity Industry, visit: https://tinyurl.com/mr3vss9z

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