Times might get tougher this year for private-equity firms, or at least that’s the future many are predicting for themselves.
Deals are shrinking and firms are pulling out all the stops to keep transactions happening. Executives were also worried about the fundraising environment, according to their personal coaches, and a report published Thursday shows most of them believe raising capital is going to remain more challenging than it was during recent years or get even harder.
According to an S&P Global Market Intelligence survey, 45 percent of private equity executives expect fundraising conditions in their location to deteriorate this year and 34 percent said conditions will remain the same. Venture capitalists were a little more optimistic; 35 percent expect the fundraising environment to deteriorate and a similar percentage said conditions will remain unchanged. The survey got 511 responses, including from executives at 246 private equity firms, 129 venture capital firms, and 131 limited partners.
Last year, only 12 percent of general partners surveyed expected the fundraising environment to worsen.
Ilja Hauerhof, director of new product development and research for private markets at S&P Global Market Intelligence, called this year’s divide between private equity and venture capital outlooks on fundraising “noticeable” and said that economic conditions are going to ultimately determine who is right. Market volatility and macroeconomic risk continue to be obstacles for general partners, she said in a statement.
Investors are talking again about opportunities in emerging markets and that was reflected in the S&P report. Half of the private equity executives surveyed in the Asia-Pacific region said conditions will improve there this year, a totally different outlook than their peers in other parts of the world. Investors in the Middle East and Africa were the most pessimistic about fundraising, where 63 percent said raising capital will be more challenging.
“Overall, the survey suggests that fundraising conditions for PEs and VCs are likely to be challenging this year. The cautious outlook of many industry professionals suggests that firms will need to be strategic and adaptable in their fundraising efforts in the year ahead,” the S&P report said.
Investors, the survey showed, still said that private equity would be the alternative asset class that delivers the best returns for them in 2023. Forty-three percent of investors also said they plan to increase their allocation to private equity in 2023.
But that doesn’t mean private equity firms can relax. In North America, 25 percent of investors are considering changing asset managers in 2023, compared to 9 percent of limited partners considering the same in Europe.
