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Pension funds stay focused on European private equity

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EUROPE - Pension funds and other institutional investors remained major investors in private equity during the crisis, suggest the latest figures by the European Venture Capital Association (EVCA), but a pension fund official has questioned the sector's immediate future.

In total, European private equity funds raised €65.3bn last year, a fall of 20% on the €81.4bn raised in 2007.

"Private equity activity slowed during 2008 in response to widespread uncertainty across financial markets," noted EVCA.

"In terms of sources of capital, pension funds were by far the largest contributor,
accounting for 23% of all funds raised or €15.2bn, compared with 17% and €13.9bn in
2007."

In contrast, however, Günther Schiendl, chief finance officer at Austria's VBV pensionskasse, thinks private equity will not recover quickly from the crisis.

"I think this sector is dead," he told IPE, adding the only chance for recovery was through public private partnerships.

Disputing this view, Javier Echarri, secretary general of EVCA, thinks the current level of liquidity in the market will suffice for new investment opportunities.

"The fact that institutional investors continued to commit significant sums to private equity funds during 2008 means the industry is well-placed to find attractive investment opportunities at a time when other sources of corporate finance are scarce," said Echarri.

Regionally, Southern Europe and the UK accounted for the largest drop-offs in funding
contributions, with Southern European contributions falling from 13% to 1.6% of the
total, while UK contributions fell from 17.5% to 11.3%.
 
"While extreme volatility prevails in the wider markets, private equity's long term
investment horizon affords it the ability to profit from counter-cyclical opportunities," Echarri noted, though admitting internal rates of return (IRR) are likely to fall further in the near-term.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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