Nearly half of respondents believe that the number of private equity houses will fall significantly over the next two years, according to a survey of 102 senior executives at 67 small/mid-market private equity houses by Smith & Williamson, the accountancy and financial services firm.
However, almost three-quarters of those surveyed are confident about the outlook for their own fund for the next year, suggesting that their concern is for others in the community.
Additionally, two-thirds of respondents believe more private equity-backed businesses will breach banking covenants in the year ahead even though the availability of debt finance has improved somewhat from the dire position of last year.
Brian Livingston, head of private equity at Smith & Williamson, says: “Our survey found that deal volume does not yet appear to have increased significantly across the board since 2008, although expectations for the end of 2010 are slightly more positive. The market still appears fragile, with mixed experiences and no clear consensus on direction in a number of areas. We believe that relationship banking is making a comeback compared to the more commoditised approach to debt of recent years.”
There is clear negative sentiment in the private equity community over increasing politically-inspired regulation and only four per cent believe that examples, such as proposals for greater transparency and disclosure, will not increase in the year ahead. For instance 54 per cent of those surveyed agree that the AIFM Directive will have a severe impact on the private equity industry.
Just over half of respondents believe the lack of funds being made available to SMEs is having a detrimental effect on the private equity community while approximately, two-thirds believe that tax breaks to encourage investment are desperately needed.
Additionally, respondents do not feel that the economic climate is improving and only 22 per cent agreed that the change of government will be a major boost to the industry.
