As Spain’s private equity market grows robustly, Isabel Rodríguez, Funds Partner, and María de Orueta, Funds Counsel, at Addleshaw Goddard in Spain examine the key private equity trends for late 2024 and early 2025, including vintage funds, reinvestments, deal-structure customization and public-sector programs. They also discuss the rising interest in renewables, infrastructure funds, GP-led transactions and continuation vehicles.
Despite the challenging macroeconomic conditions that continue to affect European markets in some way, with inflation still high, and considering that the number and volume of private equity investments fell by more than 34% in 2023 (compared to 2022), the private equity sector remains a very attractive asset in these years.
There are a significant number of new projects for the authorisation and incorporation of regulated managers willing to enter the private equity business and the creation of innovative projects, mainly focused on sustainable or impact investments. The recent increase in interest from private banks and family offices in this type of asset in Spain, as well as the various public investment incentive programmes, have served as motivation for the launch of many of these new projects.
On the other hand, a number of well-established managers who would otherwise have started marketing their vintage funds last year, but who decided to remain cautious and patient as they saw their competitors in this field experiencing great difficulties (with longer closing times and fundraising significantly lower than expected), are considering 2024 as an interesting year to launch such vintage funds, while also exploring new fund strategies (such as secondary transactions and single asset opportunity funds).
With the general reduction in capital allocations that certain investors have faced in recent years, many of these investors have generally chosen to maintain existing sector allocations by reinvesting in successor funds to those in which they have previously invested and which have a satisfactory track record, favourable past performance and deal and operating teams that they are familiar with.
By offering these investors the opportunity to participate in first closings, with corresponding management fee or carried interest discounts and other favourable investment terms (such as priority over co-investment opportunities), management companies have been able to build on existing investor relationships.
In order to mitigate the lack of investment from some of their recurring investors (who in some cases may not be able to reinvest in a successor fund, or may have to reduce their allocation on that occasion, due to the reduction in asset sales by the private equity funds in which they invest, ultimately resulting in these investors receiving fewer distributions), managers are exploring various alternatives to complement their existing investor base. The following solutions are also often chosen by first-time managers with no proven track record or existing investor base.
The use of global placement agents and investor consultants is becoming increasingly important, particularly in accessing international institutional investors, pension plans and family offices (particularly in those jurisdictions where a regulated agent is required to handle such marketing activities). In this respect, US pension and other institutional funds and Middle Eastern and Asian sovereign wealth funds are showing great interest in finding investment opportunities in Europe (including Spain).
On the other hand, within the local market, Spanish managers are offering investors the use of deal structures tailored to specific investor needs in order to attract new investors, in particular high net worth individuals, family offices and financial institutions' managed accounts and aggregator vehicles, whose interest in investing in private equity has grown significantly in recent years.
On the other hand, the European market, and Spain in particular, benefits from access to a wide range of public programmes that have been approached by managers seeking to secure substantial commitments and complete their private investor base. In Spain, in addition to the European programs, Spanish public actors such as the Official Credit Institute (ICO) of the Ministry of Economy have been (and continue to be) key players since the beginning of private capital in Spain, allowing numerous management companies to take their first steps and subsequently consolidate their business.
There has been a significant increase in interest in GP-led secondary transactions and continuation vehicles, driven by the desire to maximise value from nominated portfolio companies, which typically requires a longer holding period and additional capital commitment for certain assets.
Such interest is typically shared between investment managers and multiple investors seeking exposure to high quality existing portfolios and investments. It is also common for some investors to focus on pursuing co-investment opportunities to increase their exposure to higher quality assets, while often benefiting from reduced fees and carried interest arrangements.
In addition, some investors have shown significant interest in other deal-specific arrangements, such as single-asset opportunity funds, which allow for greater investor influence and control over investment policy. Although potentially offering less financial upside for managers, these mandates can provide additional revenue streams and help develop relationships with investors during periods of fundraising for a flagship strategy where existing funds have not yet been fully deployed or there has been a significant divestment, or when considering the launch of a new investment strategy.
At the same time, in the face of a higher interest rate environment and tighter bank lending conditions for companies, credit fund strategies have continued to grow in this 2024, and credit and direct lending funds in Europe have become of great interest to investors seeking reliable returns. This growth is accompanied by the introduction and development of European Long-Term Investment Funds (ELTIFs), which aim to finance the real economy by channelling non-bank capital into long-term infrastructure projects and the financing of small and medium-sized enterprises.
On the other hand, the sectors of greatest interest in Spain are those mainly related to impact and sustainable investments, which promote and integrate environmental and/or social characteristics. Similarly, there has been in 2023 and 2024 there a notable increase in interest in the energy and infrastructure funds market, particularly those focused on renewable energy. This trend is generally due to the development of European sustainability regulations, which have encouraged both national and international managers and investors to implement new practices and investment strategies.
For late 2024 and early 2025, and assuming some increase in the number of deals that could lead to additional investor demand for new capital, trends will not change significantly at this stage. Managers will focus on adapting to this challenging fundraising environment, both by strengthening their relationships with existing investors, but also by exploring new investor bases (hiring placement agents to market internationally or engaging private banking distributors) and offering more customised and deal-specific opportunities.
Overall, Spain remains well positioned and competitive in this environment, with its private funds market showing strong signs of growth and potential to attract more capital (including international capital), offering value opportunities in a wide range of reputable sectors and across a variety of strategies.
Article published by Leaders League
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