Decline in Trust in Private Equity Funds

According to the latest Deloitte survey on trust in private equity funds, the index is significantly declining due to expected worsening economic expectations, while new opportunities for buyers are anticipated in the upcoming period. The latest index has reached a slightly lower level compared to the pre-pandemic period, reflecting the impact of rising uncertainty, more negative economic expectations, and a decline in optimism and trust in the market.

Despite this, general partners (GP), want to invest, with approximately half of investors (49 percent) intending to focus on new investments. The ongoing desire for transactions may be a result of the expected decline in valuations: 14 percent of respondents believe that sellers have lowered their expectations regarding valuations in the past six months, which is double the amount from the last survey when 7 percent of respondents felt the same, while 65 percent of respondents believe this trend will continue.

Pipeline of transactions is robust, with over two-thirds of respondents (71 percent) believing that the situation is the same as it was four months ago, and nearly one-fifth (18 percent) believing that the situation has actually improved.

– The research we have been conducting for nearly 20 years has shown us that after every shock and decline, a favorable period for transactions follows due to increased trust and economic expectations, while valuations are not yet at extremely high levels, and we expect the same this time. What makes a difference today is the accumulated experience of investors in managing businesses during difficult times and periods of uncertainty, with the pandemic as the last learned lesson – said Ante Salopek, a manager in Deloitte’s financial advisory department.

Due to the expected increase in central bank interest rates in the fight against high inflation, a reduction in market liquidity is anticipated, where more than two-thirds of investors (71 percent) expect a decrease in the availability of financing for transactions through debt, which is a significant increase from 30 percent of respondents in the last survey. Such a low level was last recorded in the autumn of 2011, when trust also fell.

According to the latest survey, policies in the area of environment, social, and governance are no longer optional but mandatory. More than half of the respondents (53 percent) have adopted an investment policy that includes specific measures in the area of environment, social, and governance, while in the last survey, this number was 30 percent. 

– This is a positive step, and we expect further growth in this percentage considering the future adoption of advisory guidelines regarding sustainability and the fact that this area will become one of the key areas of interest for governments and leaders at the EU and national levels. The sector in question is an example for others on a global level, and Central Europe is increasingly involved in this process – emphasized Salopek.