From Morningstar: 2024-09-02 06:41:00

Three major European-based private market firms – CVC, EQT, and Partners Group Holdings AG – receive narrow moat ratings. Despite their expected profitability, high mid-20s EV/EBITDA multiples signal the market prices in strong fundamentals. The three firms benefit from high switching costs for investors and intangible assets, supporting narrow moat ratings.

Investors locked into funds for 5 to 20 years drive reinvestment in successor funds for the European managers. Morningstar metrics for EQT show a ★★★ rating, high uncertainty, and a narrow economic moat. CVC has climbed over 15% since its IPO, with an economic moat rated as narrow by Morningstar.

Private capital returns’ dispersion is wider than public markets, making established track records a key asset for CVC, EQT, and Partners Group. Concerns over potential fee margin erosion and regulatory scrutiny exist. Private markets’ outperformance narrowing the gap with public markets may challenge fee justifications, affecting long-term profits.

Higher interest rates impacting dealmaking, but long-term growth prospects for private markets remain positive. Limited partners expanding allocations to private markets seek higher performance and diversification. Industry consolidation benefits firms with strong track records and client relationships. Access to new individual investors brings in fresh capital for managers.

Morningstar metrics for Partners Group indicate a ★★★ rating, high uncertainty, and a narrow economic moat. Private market managers face challenges justifying higher fees as the asset class attracts more attention from regulators and retail investors. A balance of supply and demand may strengthen limited partners’ positions in negotiations.



Read more at Morningstar: European Private Equity Firms: Profitable But Expensive