Private equity market: sentiment was divided in fourth quarter of 2018

• Business climate in the VC market climbs to all-time high, later-stage climate much cooler
• 2018 saw highest average confidence level in 15 years
• Equity market environment remains very good and is virtually unchanged year-on-year

The business climate in the German private equity market dropped for the second consecutive quarter. In the fourth quarter of 2018, the index of the German Private Equity Barometer fell by 4.2 points to 67.9 balance points. The indicator for the current business situation fell by 4.4 points to 73.2 balance points, while the indicator for business expectations lost 4.0 points to close at 62.6 balance points. But although confidence was lower in the second half-year, on average 2018 was the year with the best business climate since 2003, when the German Private Equity Barometer was first measured.

But sentiment was divided at the end of the year. While the business climate set a new record in the venture capital segment, sentiment cooled yet again in the later-stage segment. The business climate indicator of the early-stage segment rose by 3.1 points to 79.8 balance points in the fourth quarter of 2018. In contrast, the business climate indicator of the later-stage segment fell by 9.4 points to 59.4 balance points and returned to the level of late summer 2016, which is still good.

“Although the business climate in the segments of the German private equity market is currently divided, the outlook for both sub-segments remains positive thanks to a stable, positive market environment”, said Dr Jörg Zeuner, Chief Economist of KfW. “The euphoric sentiment in the VC market towards the end of the year signals that the strong investment activity of the first half has continued and the aggregate figures for 2018 will show the highest investment activity since the turn of the millennium. In the later-stage segment, sentiment currently appears to be shaped by the negative view of the stock markets. At any rate, we see no signs of a fundamental shift in sentiment.”

Ulrike Hinrichs, Managing Director of the German Private Equity and Venture Capital Association (BVK), draws a positive conclusion: “2018 was another successful year for the German venture capital and private equity market. Last year, the business climate was rated better than at any time since we launched the German Private Equity Barometer together with KfW in 2003. What is particularly pleasing is the outstanding sentiment in the venture capital market, which has been restrained for a long time. We do not expect the market nor sentiment in the sector to drop in 2019, even though investors in the later-stage segment in particular respond more sensitively to changes in the environment than venture capital players. The most recent downturn in sentiment in the later stage was understandable against the backdrop of general worries over the economy, Brexit, trade conflicts and stock market turmoil, and it is no cause for concern.”

KfW calculates the German Private Equity Barometer exclusively for the Handelsblatt business daily together with the German Private Equity and Venture Capital Association (Bundesverband Deutscher Kapitalbeteiligungsgesellschaften – BVK).
You can find a detailed analysis with a spreadsheet and graph on the latest German Private Equity Barometer at www.kfw.de/gpeb (available in German only).