Private Market Fundraising Hits the Skids

Secondaries are the only private market category in which fundraising activities have surged above their usual levels.

Illustration by II

Illustration by II

The fundraising environment continues to deteriorate for managers of private capital funds, including those focused on private equity, venture capital, private debt, real estate, and real assets.

Private capital funds raised a total of $211 billion in the first quarter, down from $293 billion in the first quarter of 2022, according to the latest private capital fundraising report from PitchBook. The number of funds closed decreased to 382 in the first quarter, a significant drop from the 560 observed in the same quarter last year.

“While it’s still early yet, it doesn’t seem risky to predict that 2023 is unlikely to set any private capital fundraising records,” Hilary Wiek, senior strategist at PitchBook, wrote in the report. “2022 was $318.8 billion off the 2021 high, and 2023 is tracking well behind where 2022 was at this time last year, both in terms of the number of funds and the capital amount raised.”

Real assets and funds of funds are having a particularly hard time raising capital from institutional investors. According to the report, real asset funds raised a total of $62.8 billion in the trailing four quarters ending in March — a figure that was down 64 percent from the trailing four quarters ending in March 2022. Funds of funds raised $19.9 billion from April 2022 to March 2023, a 51 percent decrease compared to the April 2021 to March 2022 period.

Secondaries are the only private market category in which fundraising activities have trended above their typical levels. According to PitchBook, secondaries funds raised a total of $30.7 billion in the first quarter, which is already 67 percent of the annual total of $46.2 billion reached in 2022. That first-quarter figure was mostly driven by the Blackstone’s Strategic Partners Secondaries IX fund, which closed at $22.2 billion in January.

According to the report, one factor that has led to the sluggish pace of capital commitments is the fact that existing managers have been coming back to institutional investors faster and with larger funds than expected. Many investors have also had to deal with the “denominator effect,” a situation in which they become overallocated to private market assets due to their shrinking public market portfolios.

The fundraising environment has been especially tough for emerging managers. According to the report, more than 30 percent of assets raised went to emerging fund managers from 2008 to 2021. In the last five quarters, however, that figure has declined to 16.9 percent. The only exception is secondaries funds, where the share of funds raised by emerging managers increased 6 percentage points.

In terms of the number of funds raised, emerging managers have historically accounted for over 50 percent of all private capital funds closed, but that figure has fallen below the 50 percent mark over the last five quarters.

“Private equity and private debt, fund strategies that are deeply interrelated, saw the largest drops in the share of emerging manager funds raised,” according to the report. “Private debt and private equity are most likely to attract allocators who are newer to the private markets and more likely to select larger, more established fund managers that are perceived to be less risky.”