With over two decades of experience, Quest has become a trusted resource for US investors seeking to navigate the European private equity landscape. Over these two decades, Quest has seen US investors developing increasingly mature programs with significant capital committed to global large-cap funds and domestic middle-market funds. Despite this, their relative European allocation remains subdued.
This trend is highlighted in a recent Stepstone report, which shows that US investors are 60% underweight in Europe compared to the US, based on allocations as a proportion of GDPs.
Quest believes this presents a significant chance for US investors to diversify their portfolios and access potentially superior returns. We delve into this further below:
1. Competitive Outperformance: Over the past decade, European mid-market buyout funds have delivered a median net IRR 6.2 percentage points higher than the global median, according to Invest Europe.
2. Strong Underlying Fundamentals: Data from the IMF indicates that many European countries provide some of the most stable economic, political, and regulatory conditions globally, offering a fertile ground for middle-market companies.
3. Lower Valuations: According to Stepstone, European mid-market buyouts typically trade at valuations 40% lower than their larger global counterparts.
4. Reduced Geographic Concentration and Exposure to Different Industries: Investing in Europe reduces dependence on the US market, mitigating the impact of domestic economic fluctuations in US investors’ portfolios, which are often overweight in public markets.
5. Lower Leverage: Stepstone highlights that leverage in European mid-market is well below the global average (3x net debt/EBITDA versus 4.5x globally). In a potential period of prolonged higher interest rates, strategies that rely less on leverage and financial engineering could outperform those that have historically relied on higher levels of leverage.
6. Less Crowded Market: Compared to the US, the European middle market is less crowded with investors, potentially leading to better deal flow, lower valuations, and more opportunities to create value. Data shows that over 2,500 private equity firms operate in Europe versus over 9,000 private equity firms operating in the US.
Quest: Your Gateway to European Expertise
While the potential for strong performance in European private equity is clear, the landscape can be complex. With over 2,500 private equity firms in Europe, identifying high-potential investments requires rigorous evaluation, often exceeding the resources US investors can dedicate independently.
Quest, with over two decades of experience in European private markets, is your bridge to premier funds and deal flow. We understand the challenges US investors face in navigating the European landscape.
Partnering for Success:
1.Local Knowledge: We leverage our established relationships and in-depth market expertise to streamline the investment process, granting you access to the most promising opportunities.
2.Proven Track Record: Last year, one-third of our capital raised came from US investors, with a remarkable 35% increase in American capital commitments to our European funds.
3.Collaborative Approach: Partnering with Quest empowers you to extend your investment team with local market knowledge, allowing you to maximize your European portfolio effectively.
The European private equity market presents a wealth of opportunities for US investors willing to look beyond their borders. With compelling performance metrics, favourable economic conditions, and a less crowded investment landscape, Europe stands out as a prime destination for portfolio diversification and enhanced returns. Quest's extensive experience and deep-rooted expertise in European private equity make it an invaluable partner in unlocking these opportunities.
By leveraging Quest’s local knowledge and established relationships, US investors can confidently navigate the complexities of the European market and achieve their investment goals.