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Fundraising Outlook Sours For Private Equity, Venture Capital Houses – Survey

Editorial Staff

17 April 2023

An international study of private equity firms around the world suggests that, at least for the time being, the party’s over for fundraising. 

According to S&P Global Market Intelligence, 45 per cent of private equity executives expect raising money for funds to deteriorate this year, and 34 per cent expect no change. 

Notably, fieldwork for the study, conducted among 511 private equity, venture capital and limited partner, took place between December 2022 and 15 January 2023. Sentiment about these markets has arguably since been affected by events such as the collapse of in the US, and rising central bank interest rates. 

Among venture capital firms, VC professionals were split, with 35 per cent forecasting a deteriorating fundraising environment and a similar percentage expecting conditions to remain unchanged. The figures come from the S&P Global Market Intelligence 2023 Private Equity Outlook Survey.

"This year's survey also identified a noticeable divide between PE and VC professionals in expectations for deal activity in 2023, with success dependent on evolving economic conditions and industry trends," Ilja Hauerhof, director of new product development and research for private markets, S&P Global Market Intelligence, said.

"It will continue to be a multifaceted nature of the industry, with market volatility and macroeconomic risk being mentioned as common obstacles for GPs (general partners). Simultaneously, LPs (limited partners) still favour PE as their top alternative asset class and anticipate it to provide the largest returns in 2023,” Hauerhof continued. “While secondary fund restructuring raises concerns for 52 per cent of surveyed LPs, it also presents opportunities as long as GPs prioritise transparency and act in the best interest of LPs."

The figures show that while non-listed market investments (private equity, private credit, infrastructure, and forms of real estate) gained ground in the past decade as equity and bond yields fell, the rise in inflation and interest rates since the pandemic have jolted the sector. Since the end of the dotcom bubble 20 years ago, the share of companies that aren't listed, or stay private, has risen versus those on public markets. This shift has been explained by onerous accounting laws and disclosures on listed firms, the attractions of higher yields on less liquid asset classes, among other forces.

General partners have more pessimistic expectations for deal activity, with 24 per cent predicting a deterioration this year compared with 7 per cent last year.

PE and VC professionals have differing opinions on the effect of geopolitical factors on their strategies. Some 52 per cent of European private equity professionals think the geopolitical situation will affect their strategies, whereas only 39 per cent of their VC counterparts share this view.

A significantly higher proportion of LPs in North America (25 per cent) are considering changing their GPs in 2023 compared with their counterparts in Europe, where only 9 per cent are contemplating a GP switch.