Private market managers' fundraising is slowing, hit by the roller-coaster ride investors have been on since the first of the year.
The drop in both equities and fixed-income markets is pushing some institutional investors' private market assets above their target allocations. That's causing asset owners to scramble to be able to continue investing in private markets, including private equity, private debt and real estate. And many are cutting the capital they can commit to these asset classes.
For example, venture capital funds worldwide raised a combined $54 billion in the first quarter, down 8.8% from the year-earlier quarter, Preqin data shows. U.S. private equity funds raised a total of $64.8 billion in the first quarter, down 26.8% from $88.5 billion a year ago. The declines illustrate a reversal of fortunes for managers and other industry executives who had early in the year predicted that 2022 would be the biggest fundraising year yet for alternative investments.
"Investors remain underallocated to alternative assets against their targets," said Michael Arougheti, New York-based co-founder, CEO and president of alternative investments firm Ares Management Corp. "However, recent trends have put investors at or over their target allocations to private equity."
Stephen Nesbitt, New York-based CEO of alternative investment consulting firm Cliffwater LLC, said he has seen reductions in new capital commitments due to the denominator effect, which is when a decline in public markets pushes up the value of investors' alternative investment portfolios.
To secure capital needed to continue committing to opportunities, some asset owners may sell some limited partnership interests, boosting transaction volume on the alternative investment secondary markets, Mr. Nesbitt said.
Other asset owners are increasing their targets to the alternative investment asset class to allow them to continue investing, Mr. Nesbitt said.