2021 record year for private equity - Finance

2021 record year for private equity – Finance

Private equity had an “exceptional” year in 2021, with record investments, and as with the rest of the financial sector, environmental, social and governance (ESG) issues are becoming increasingly central to the sector.

In the United States, private equity firms invested 1.2 trillion dollars last year, 50% more than the previous record of 2019, according to an annual study by PitchBook, published this week.

There was a catch-up to the year 2020 marred by the Covid-19 pandemic, but it was more the abundance of liquidity and market opportunities that motivated the more than 8,600 transactions carried out.

Same “exceptional” year in Europe where equity investments in the unlisted jumped by nearly 60% to reach 754.5 billion euros.

Private equity consists of investing funds, raised from professional investors, in unlisted companies with the aim of making a capital gain at the time of resale, several years later.

By becoming a larger shareholder than the holders of a few shares, private equity firms have a “strong capacity for business transformation”, underlines Dominica Adam, head of sustainable development at the investment company Apax Partners.

She affirms that ESG issues have a central role in all phases of investment: from the choice of the target company which will pass a battery of pre-acquisition audits to the development of long-term projects, passing by day-to-day business at each board meeting.

“The consideration of ESG issues has really entered into market practices”, estimates Sylvain Lamber, at PwC, underlining a “strong rise in power on these subjects” with the Covid-19 and two countries at the forefront, France and the United Kingdom.

“In these two countries, the funders, those who provide the money to private equity, are big players — banks, insurance companies, pension funds — who have their own values ​​and have brought corporate social responsibility ( CSR) in investment choices”, he explains.

In the United States, the movement is taking its course but out of step: the Pitchbook report notes that after the commitments made in 2020 and 2021 by heavyweights like BlackRock and KKR, ESG principles and impact investing “have become even more relevant” last year.

For industry experts, there is a clear shift in practices. If, in 2016, ESG was looked at in order to comply with regulations, today the motivation is more concrete: a sustainable company sells for more, and “value creation” has become the main motivation of managers, according to a PwC study.

“In the minds of investors, ESG has really become synonymous with value creation. An attractive and well-functioning company cannot be a company with poor ESG performance”, underlines Sylvain Lambert.

For the moment, there is no real method to quantify this value creation linked to ESG, the final probable obstacle to convincing the last managers who have remained on the sidelines of this subject.

In the United States, private equity firms invested 1.2 trillion dollars last year, 50% more than the previous record of 2019, according to an annual study by PitchBook, published this week. There was a catch-up to the year 2020 marred by the Covid-19 pandemic, but it was more the abundance of liquidity and market opportunities that motivated the more than 8,600 transactions carried out. Same “exceptional” year in Europe where equity investments in the unlisted jumped by nearly 60% to reach 754.5 billion euros. Private equity consists of investing funds, raised from professional investors, in unlisted companies with the aim of making a capital gain at the time of resale, several years later. By becoming a larger shareholder than the holders of a few shares, private equity firms have a “strong capacity for business transformation”, underlines Dominica Adam, head of sustainable development at the investment company Apax Partners. She affirms that ESG issues have a central role in all phases of investment: from the choice of the target company which will pass a battery of pre-acquisition audits to the development of long-term projects, passing by day-to-day business at each board meeting. “The consideration of ESG issues has really entered into market practices”, estimates Sylvain Lamber, at PwC, underlining a “strong rise in power on these subjects” with the Covid-19 and two countries at the forefront, France and the United Kingdom. “In these two countries, the funders, those who provide the money to private equity, are big players — banks, insurance companies, pension funds — who have their own values ​​and have brought corporate social responsibility ( CSR) in investment choices”, he explains. In the United States, the movement is taking its course but out of step: the Pitchbook report notes that after the commitments made in 2020 and 2021 by heavyweights like BlackRock and KKR, ESG principles and impact investing “have become even more relevant” last year. For industry experts, there is a clear shift in practices. If, in 2016, ESG was looked at in order to comply with regulations, today the motivation is more concrete: a sustainable company sells for more, and “value creation” has become the main motivation of managers, according to a PwC study. “In the minds of investors, ESG has really become synonymous with value creation. An attractive and well-functioning company cannot be a company with poor ESG performance”, underlines Sylvain Lambert. For the moment, there is no real method to quantify this value creation linked to ESG, the final probable obstacle to convincing the last managers who have remained on the sidelines of this subject.

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