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Europe-focused private capital AUM to double in next four years, predicts Preqin

By the end of 2026, private capital AUM in Europe is forecast to reach €4.9 trillion, delivering a 14% compound annual growth rate (CAGR) in AUM since 2021, according to Preqin analysts.

The total assets under management (AUM) of private capital funds focused on Europe stood at €2.2 trillion at the end of December 2021, according to Preqin Pro, the company’s database and analytics tool. To put this into perspective, in December 2015, the industry’s AUM was around €1.3tn, almost doubling in the last seven years. 
  
The strong performance of private capital assets following the global financial crisis (GFC) has brought many new investors to these markets. What’s more, the Covid-19 crisis created new opportunities in Europe, with the sharp V-shaped rebound helping existing investments in older vintages and pushing performance numbers noticeably higher. 
 
In the European alternatives industry, declining interest rates throughout the pandemic pushed equity valuations to historically high levels. The positive impact on private equity and venture capital (VC) internal rate of returns (IRRs) was significant, with the one-year horizon IRR of Europe-focused VC funds to December 2021 reaching +43%. However, more recently, while venture capital fundraising has held up, private equity fundraising to the end of June 2022 was only €34 billion raised, against €136 billion across 2021. 
  
Looking at historical AUM data, until recently, the United Kingdom (UK) dominated European alternatives AUM across all asset classes, but at the end of 2020, Western Europe overtook the UK in terms of AUM in all private capital asset classes apart from private debt and, more broadly, hedge funds.  
 
As Western European AUM growth now outstrips the UK’s, fund domicile data shows the UK has also lost ground to Luxembourg, particularly since 2017. In 2010, the UK and Luxembourg hosted 41% and 15% of Europe-focused funds capital, respectively, but by 2021, this has reversed to 16% and 46%. 
 
Asset class forecasts in Europe suggest that infrastructure and private debt are set to experience the strongest growth in overall AUM between 2021 and 2026. Their respective CAGRs are 24% and 19%. 

Private equity is forecast to remain by far the largest asset class in 2026 reaching €2.1 trillion, to make up 43% of private capital in Europe. 

The one-year horizon IRR of Europe-focused venture capital funds to December 2021 reached +43%. 

Actual allocations for private debt have effectively caught up their targets since Q2 2015, reducing the gap from 3.6% of assets under management (AUM) to just 1.7% in 2022, while actual allocations stand at 3.3% of AUM. 

Real estate has remained the central target across alternatives. The latest funds in market data for Europe suggests real estate maintains a higher level of aggregate capital targeted (€101 billion) in June 2022 compared to infrastructure (€77 billion). However, Preqin’s forecast suggests infrastructure AUM will overtake real estate around 2025. 

Infrastructure has experienced a marked uptick globally, although the bulk of that is intended for deployment in North America. Natural resources has seen the largest overall increase in median target allocations, from 0% in 2015 to 3% in 2022, with European investors quickly bringing this asset class up to 2.3% of actual allocations this year. 

Natural resources has seen the largest overall increase in median target allocations, from 0% in 2015 to 3% in 2022, with European investors quickly bringing this asset class up to 2.3% of actual allocations this year. 

Recently Europe-based hedge fund AUMs have taken a hit, down 9% from Q4 2021 driven by a -6.4% net return at Q2 2022.  
 

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