Private equity activity slowed in the first quarter, but the industry outlook for the rest of 2022 is far from bleak.
The first sign of a moderation in activity came from a drop in fundraising. In the first quarter of 2022, global private equity firms raised a total of $116 billion, down 10 percent from last quarter and down 38 percent from the same period last year, according to the latest private equity report by Preqin. In particular, deal activity in Europe cooled down, with the number of buyout deals in the first quarter declining 29 percent year-on-year, according to the report.
But while the private equity industry lost momentum in Europe, it picked up speed in Asia. According to Preqin, the number of buyout deals reached 214 in the Asian market in the first quarter, up 23 percent from the first quarter of 2021. As a result, Asia’s share of the global deal flow increased by 3 percentage points year-over-year, while Europe’s was down 8 percentage points.
“2021 was always going to [be] a tough base of comparison, and fundraising has indeed softened,” said Cameron Joyce, senior vice president and deputy head of research insights at Preqin. “European buyout deal value has seen a contraction, with the conflict in Ukraine no doubt [impacting] sentiment.” But he added that the uptick in buyout activity in Asia has signaled that the “appetite for private equity appears to [be] intact overall.”
In Asia, the general partners were also busy with deals among themselves. Baring Private Equity Asia, a Hong Kong-based PE firm with EUR 17.7 billion (USD 19.3 billion) assets under management, was acquired by the Swedish investment firm EQT in a EUR 6.8 billion (USD 7.4 billion) deal in March. PAG, a $50 billion Asia-focused alternatives manager backed by Blackstone, announced its initial public offering plan on the Stock Exchange of Hong Kong a few weeks ago.
Besides the acceleration in deal activity in the Asian market, the upward-trending return profile is another reason that investors remain confident. The median net internal rate of return achieved 29 percent for 2019 vintage funds, according to Preqin.
The report added that from a historical perspective, private equity firms have performed well during volatile conditions, such as during the global financial crisis and the early stages of the pandemic. That’s probably why investors “are relatively unfazed” when it comes to their private equity allocation, the report said. Ninety-six percent of allocators said they would invest in private equity funds in 2022, according to a previous Preqin survey of more than 350 limited partners.
The report concluded that most of the damage created by the Russia-Ukraine war has been limited to Eastern Europe, although higher prices for food and energy will likely persist for a while. But overall, the report said, the private equity model is “well suited to times of stress and uncertainty.”
