Fundraising in private markets looks dire — except private debt funds.
Private debt funds have raised $98.9 billion in the first half of 2023, according to PitchBook’s latest private market fundraising report, which is expected to be published on Tuesday. Private debt funds are on track to raise more than $200 billion for the fourth consecutive year. In the first half of 2023, private debt funds accounted for almost 20 percent of the total capital raised in the private markets, a percentage that is “much more than usual,” according to the report.
“The rise in interest rates has meant that banks can earn decent returns on lower-risk lending areas, while private debt fund managers are happy to fill the void while earning excellent yields,” Hilary Wiek, senior strategist at PitchBook, wrote in the report. “More scrutiny on banks in the wake of first quarter 2023 failures of [Silicon Valley Bank] and others has also led to a decline in banks offering to lend, thus creating less competition for private debt managers.”
Venture capital funds had a much tougher time attracting capital from investors. According to PitchBook, a total of 592 VC funds raised $77.7 billion in the first half of the year, significantly lagging their fundraising pace during the same periods over the past five years. The absence of mega-funds with more than $1 billion in assets contributed to the sluggish fundraising environment. According to the report, mega funds attracted over 40 percent of total VC commitments between 2018 and 2022. In the first half of 2023, however, they only accounted for 15 percent of total capital raised.
Just like their VC peers, private equity funds are unlikely to catch up with the pace of fundraising in 2022. According to PitchBook’s data, PE funds raised $211.1 billion in the first half of the year. Mega-funds no longer dominate PE fundraising. According to the report, middle-market funds — those with $100 million to $5 billion in assets — accounted for more than 60 percent of capital raised year-to-date, up from 50 percent in 2022.
“[Investors] may be turning to smaller funds for several reasons: They can have a more meaningful stake in the fund, they believe valuations are better at the smaller end of the market, or they are seeking strategies that specialize in some corner of the market,” according to the report.
Real estate and real asset funds have also found themselves in a challenging fundraising environment. Real estate funds raised $58.3 billion in the first half of the year, pacing below the halfway point of capital raised in 2022. Of the $58.3 billion raised, over half was contributed by the Blackstone Real Estate Partners X fund, reflecting investors’ preference for “familiar and trusted names,” according to the report. Real asset funds only raised $9.1 billion in the first half of 2023, compared to $114.1 billion in 2022. “This was so far off pace that it is possible that real assets fundraising will have its worst year in 10 years,” the report said.
