Fundraising prospects for 2023 across private asset classes haven't been so grim in a decade, with even the blue-chip alternative investment firms extending timelines for flagship funds to raise money well into the new year.
It's been a challenging fundraising environment for fund managers across all sectors. While managers are hopeful that the pace of commitments will pick up in 2023, gone are the days that alternative investment managers could close a fund in a couple of months.
Some of the most highly regarded, brand-name firms, even after a year, are having trouble hitting their targets, let alone their hard caps, industry insiders said.
There are lots of reasons for this, including liquidity issues among limited partners from the "denominator effect," which is the drop in public market assets boosting private market assets in investors' portfolios, and managers' penchant for raising larger funds faster, industry insiders said.
Limited partners were already running into some level of illiquidity in 2021 when commitments accelerated because managers were coming back to market more and more often, said Adam Bragar, New York-based head of the U.S. private equity practice of Willis Towers Watson PLC.
In 2022, capital commitments were down 1.4% to $497.3 billion as of Dec. 22 compared to $504.3 billion in all of 2021, Pensions & Investments data show. The number of commitments were flat at 129 as of Dec. 22, one less than in 2021, according to P&I.
"The four- or five-year intervals between funds was already out the window" before the current market volatility, Mr. Bragar said. Rather, venture capital firms waited only a year to raise money again, while buyout managers generally waited three years, he said.
Whether the slowdown in commitments will continue into 2023 depends on investors' current and projected liquidity, Mr. Bragar said.
"I don't think the current macro environment will help because it is putting pressure on that denominator effect," he said.
"So even though this is probably an attractive time to be investing, I would expect commitment paces to continue to be slower in 2023 than they have been historically," Mr. Bragar said.
Even the hottest private markets sector, credit, showed weakened fundraising in 2022, with total capital committed down 31% to $75.8 billion and the number of funds down 17% to 25, P&I data show.
Private equity was the only alternative investment category in which the number of funds and amount of capital committed increased in 2022. Asset owners committed a combined $296 billion, up 17.3%, in 73 funds, a 30% increase over the prior year, according to P&I.
However, fundraising by private equity funds worldwide was down 41.8% to $405 billion at the end of the third quarter last year, compared to all of 2021, and the full year 2022 is expected to be down 21.5%, according to Preqin.
Private debt funds fell 11% to $172 billion in the third quarter from all of 2021, Preqin data also show.