PE sponsors upbeat on world economy – report

Fund managers, businesses and investors are more positive about 2018’s prospects for LBOs.

US private equity sponsors have become markedly more bullish on the global economic outlook since the beginning of the year, according to a survey by private debt manager Antares.

In its second annual survey of sponsor, investor and mid-market business confidence, Antares discovered firms were more positive in 2018 than in 2017.

The global economy in particular saw mixed feelings from private equity sponsors a year ago, with 27 percent saying they were pessimistic about the outlook while 40 percent were uncertain. But this year sponsors are much more positive, with no firms stating they were pessimistic while just 11 percent were uncertain. The remaining 89 percent were positive about the global economy.

While views of the US economy in 2017 were more positive than the global outlook, this too has improved.

In 2017, 85 percent of private equity sponsors were confident or very confident in the US economic outlook for the 12 months ahead. This year 89 percent are confident. Similar trends can be seen among mid-market companies – going from 75 percent confident to 89 percent confident – and investors – which went from 79 percent confident to 87 percent confident over the same time period.

Private equity sponsors did not expect President Trump’s tax reforms to cause a change in LBO activity, with 6 percent expecting it will increase balanced by 6 percent who believe activity will fall, while 88 percent expect no change.

Most investors (36 percent) believe US leveraged loan volume will remain flat in the next year, while 31 percent expect it to increase against 34 percent expecting a fall in leveraged loan volume. As the US economy strengthens, 74 percent of respondents expect LIBOR to creep up to between two and three percent. More than half of investors expect LBO activity to increase in 2018, while just 10 percent expect it to decrease.

Antares’ survey spoke to 100 firms in January 2018; consisting of mid-market companies, private equity sponsors and institutional investors.