Dec 14, 2022 - Economy

Private equity gets more interest, but fewer dollars

Illustration of two hands about to shake, but being kept apart by a downward trending arrow.

Illustration: Aïda Amer/Axios

The good news for private equity is that many institutional investors find it increasingly attractive, due to public market volatility.

The bad news for private equity is that many institutional investors expect to make fewer and smaller fund commitments, due to public market volatility.

  • That contradiction is the headline finding from Coller Capital's latest survey of limited partners, which it publishes twice per year.

By the numbers: 36% of North American respondents say private equity has become more attractive than public equity, while the figure is 52% for Asia LPs and 28% for European LPs.

  • On the other hand, only 27% of all LPs plan to increase their target allocations to alt assets over the next 12 months, which is way down from Coller's prior survey six months earlier.

What happening: This is the denominator effect being manifested, as public stock swoons have cut into the cash value of LP allocation percentages.

  • It's also a reflection of how PE fund cycles are lengthening, after the historical norm of three years had condensed into 12 months.
  • Or, as one venture capitalist recently explained to me: "We don't need to give back fund commitments, like during the dotcom bust, we just need to make them last longer than we have been."
  • There's also increased LP interest in private credit, which could be sucking up some of the allocation.

The bottom line: Private markets almost always follow public markets , with a bit of lag. So this is to be expected. But for PE firms caught in the wrong part of the fund cycles, it could really sting.

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