Based on the insights from this study we recommend the following actions to European investors:
Sharpen your investment sweet spot to capture growth
Every investor needs growth exposure. Refine how your sweet spot investment criteria will help you acquire growth (for the right price) or build your capabilities to realize inorganic growth and drive operational improvements. You will need it in order to thrive under macro pressures.
Make your acceptable trade-offs explicit
Perfect assets are rare and oftentimes prohibitively expensive. Being explicit about the flaws you are willing to look beyond (or better still: hold the capabilities to improve) will help you create winning angles and provide direction to your investment professionals. They will know which opportunities to bring to IC and push hard for.
Get creative to find multiple expansion opportunities
It is a fallacy to think that multiple expansion has no role to play in tomorrow’s returns due to valuation compression. The route to multiple uplifts via buy-and-build remains wide open even if the entire valuation curve moves down. Additionally, solving specific issues (e.g. client concentration) can still enable a higher exit rating.
Pick winners within their markets rather than just winning markets
Growth is granular, so only chasing after the latest hottest TMT vertical makes you miss out on plenty of opportunities. What is more, these businesses may come at more attractive valuations. Dig deeper to find niches where you can build an angle and find the outperforming assets within these.
Leverage more granular data to get beyond monetary headwinds
Today’s technology enables investors to capture a wealth of data on the private asset pool that was previously out of reach. Trends like generative AI are only speeding this up. There is no denying that PEs will require more creativity to do well in the next decade. Smart data-driven sourcing strategies are one place to start.