Capital Markets Assumptions for 2023

Two weeks ago, I visited the SuperInvestor LP-GP conference in Amsterdam. It’s clear that the second half of 2022 was not the best period for raising a fund, yet performant Private Equity and Venture Capital funds are still in the center of family offices and HNWI’s interest. What are the patterns that can be anticipated for 2023? Here is a portion of the viewpoints from the conference.

Further Slowdown in Fundraising

Fundraising in private equities may expect a slowdown, especially with an anticipated (global) recession and geopolitical uncertainty. Moreover, higher interest rates are expected to continue in the next months with the central banks’ aggressive attempt to combat inflation. That said, a higher interest rate would mean private equity investors may move their funds elsewhere, creating a challenging environment for fundraising activities. On the other hand, investors may just focus on value-preserving strategies with their existing investments, rather than building more investments.

Continuance of Sustainability Efforts

The trends towards sustainability and diversity would still be crucial areas to work towards in the coming years. The alternative investment industry will still see a continued demand from investors to integrate sustainable and ESG-focused strategies in their investments. Private equity fund managers will be more pressured to accommodate and incorporate ESG policies into their portfolios.

Raising support in 2023

Midyear projections of private value-raising support show that the asset class is on pace for another year of heavy investor interest and enough enthusiasm to carry over into 2023 for similar results. Continuation funding will be stronger as exit multiples are not satisfactory. While the fund count may stay flat and we may not see record-breaking fundraising levels as many investors tiptoe through this period of uncertainty, many asset owners are happy to trust in private equity even through a downturn after satisfying returns came out of the Global Financial Crisis era.

Deal market in 2023

In the second half of 2022, we’ve seen deals slow, and more of the same could be ahead for 2023. Amid inflation and rising interest rates, banks are taking on a new level of due diligence to all deals they oversee, slowing the process. With valuations low, managers may have trouble convincing sellers to move forward, as sellers hope for higher valuations than the market is willing to provide at the moment.

Exit landscape in 2023

With inflation remaining stubbornly high and tech valuations down as of late, these elements naturally make for fewer exits, as sellers wait on more opportune times to sell or IPO. However, the secondary market could help to pick up some slack from decreasing exits, in which case we’ll see GP-led exits continue to climb.

ESG in private equity 2023

Calls for private equity to lead the charge on ESG adoption are growing, including in the Harvard Business Review and at the World Economic Forum. Regulators are also turning increasing attention to how private equity managers account for ESG. As GPs seem to be taking the cue, as their sense of social and environmental responsibility takes priority over value-creating in their grappling with ESG action. With growing attention on the asset class, we expect to see further ESG developments take form, especially among mid-sized and large private equity managers.

Conclusion

Overall, though in 2023, there is a great deal of data to suggest that investors can expect comparative resilience from private asset valuations. We believe that by targeting a steady investment pace and focusing on long-term trends, investors have numerous ways to position their private asset portfolios well.

Feel free to reach out to me if you are raising your next fund. We will be happy to discuss our placement activities to support you.