Fundraising in private equity faces strong challenges: Macroeconomics is currently at the center of many conversations about private equity, whether it’s a soft landing, an inflationary new normal, mild recession stagflation or severe recession. Many industry articles looked at important themes for the year ahead, such as what macroeconomics means for the private equity industry in the current environment and what could happen in the next six to eighteen months. But history teaches that there will be solid years of investment after any crisis.
The pace of deployment slowed in the short term in 2022 compared to 2021, but ended the year at a very high level historically. Valuations are sometimes contested, so this is the type of environment that can create opportunities for well-positioned investors.
Although private equity generally enjoys structural advantages in terms of low volatility and correlation, the current macroeconomic environment has resulted in additional selectivity in the buyout market. Number of transactions and activity levels are down, and almost everyone expects this trend to continue in 2023. New buyouts are still taking place, but investment companies are more selective on the geographical areas, sectors and companies to which they wish to be exposed.
Speaking of sectors, for example, in line with the trend accelerated by the confinements, we see a continued interest in companies that are resilient, cash-generating, asset-light and with recurring revenues or offering clear visibility, such as software , technology and health, but also sectors disrupted by new technologies such as financial services.
Historically, access to private markets around the world has faced many barriers, due to stringent regulatory requirements and high investment minimums.
In recent years, however, private equity products that have traditionally only been available to institutional investors have opened up to retail investors thanks to regulatory developments that have helped unleash pent-up demand. Indeed, thanks to the good historical performance and low volatility of the asset class, demand has intensified from private banks and their wealthy clients looking for diversification.
Today, regulators and managers around the world are helping individual investors overcome these obstacles by launching products tailored to individuals and regulatory requirements, such as European-level ELTIFs. In addition, “evergreen funds”, open-ended funds with a perpetual investment period and no fixed lifespan, have been developed to accelerate the capital deployment period, thus making private equity more accessible and advantageous for investors. investors with faster return expectations.
To conclude, private markets have had a strong performance over several cycles and we believe the asset class will continue to do so. In addition, we are convinced that private equity will be more present in the portfolio of individuals thanks to these new regulations.