German Private Equity Barometer: optimism at year-end

• Business climate improves to two-year high
• First time that business situation has been better for early phase financiers than before the crisis
• Foundation laid for stable upswing in sentiment

The German Private Equity Barometer calculated jointly by KfW and BVK shows a significant improvement in sentiment in Q4 of 2013. After the annual low in Q3, the business climate index jumped by 19.7 points at year-end to a two-year high of 51.1 balance points. The sentiment has improved in both segments of the equity market, albeit with a different focus. In the early phase segment, the sub-index for the current business situation in particular saw an improvement (up 24.6 points to 54.1 balance points). Early phase financiers are thus viewing their current business situation as being better than at the start of 2008 for the very first time. In contrast, in the late phase segment, the sub-index for business expectations for the next six months has risen substantially (up 27.5 points to 59.6 balance points).

With the increase, the business climate index still has no clear direction. However, the foundation has been laid for a sustainable upswing in sentiment. Equity investors are currently more optimistic than average with regard to important overall conditions – fundraising, exit possibilities, write-downs required or the quality of the deal flow.

"The most important indicators on the equity market have been switched to 'green'," states Dr Jörg Zeuner, Chief Economist of the KfW Group. "This is especially true of the early phase segment. The demand for venture capital is near an all-time high, the quality of the deal flow is sound and the funding is there. So the conditions are good for reviving the disappointing venture capital investment activities seen over the last few years." BVK Managing Director Ulrike Hinrichs adds: "The current upturn in sentiment is hopefully just the beginning of a lasting improvement in the sentiment on the market. The overall economic conditions are right and we are optimistic that investments will rise again – both on the venture capital market and in the late phase."

KfW calculates the German Private Equity Barometer exclusively for the Handelsblatt together with the Bundesverband deutscher Kapitalgesellschaften e. V. (BVK; German Private Equity and Venture Capital Association). A detailed analysis is available for download at www.kfw.de/gpeb.