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Private Market Strategies Show Diverse Performance Trends, Impacted by Various Factors


Aug 2, 2023

In a recent report by Pitchbook, the performance of private market strategies has exhibited remarkable variation, reflecting changing market dynamics and economic shifts.

In a recent report by Pitchbook, the performance of private market strategies has exhibited remarkable variation, reflecting changing market dynamics and economic shifts. The analysis reveals significant shifts in returns across different private market strategies, with particular emphasis on the years since 2019. In contrast to the years prior to 2019, where results ranged between roughly 5% and 15%, the subsequent years have shown a vastly different picture.

Through Q2 2021, all private market strategies demonstrated returns surpassing 15%, while in the year through Q4 2022, five out of seven strategies struggled, posting returns below 5%. These fluctuating results underscore the crucial impact of strategy selection and manager decisions on LP outcomes.

The dynamics of the public market rally, particularly driven by a select group of large stocks, have hindered traditional exits for Private Equity (PE) and Venture Capital (VC) sectors, such as IPOs and M&A. This has challenged the upward trajectory of private market valuations. Additionally, the downfall of institutions like Silicon Valley Bank and limited access to venture debt have contributed to this environment.

Private Equity (PE) saw recovery in Q4 2022 after a rough patch, posting a return of 2.3%. However, it still trailed behind the MSCI World Index's 9.6% return, partly due to higher financing costs and portfolio valuations under review. Smaller PE funds outperformed larger ones in the one-year rolling IRR metric. Regional analysis highlighted North American funds as relatively better performers.

Venture Capital (VC) faced a downward trend in the rolling one-year horizon IRR, declining for six consecutive quarters by the end of 2022. Macroeconomic challenges and public market volatility negatively impacted VC, leading to delayed exits and increased holding periods. Smaller venture funds displayed resilience due to their focus on early-stage ventures.

Real Estate returns remained above the lows of the COVID-19 era, with distressed and value-add funds performing notably better. While the quarterly returns indicated a potential recovery, they still hovered around historic lows.

Private debt demonstrated strength in a rising interest rate environment, delivering attractive returns compared to equities and bonds. Floating rate loans played a crucial role in protecting principal and delivering steady performance, standing out as a reliable strategy.

Fund of Funds (FoF) and secondaries strategies faced a volatile landscape, with generalist and specialist funds showcasing diverse performance outcomes. FoF's performance shift, from outperforming to underperforming private capital, correlated with market shifts and strategy composition.

Secondaries, despite a brief downturn, rebounded in performance with a notable margin over the broader private capital landscape. The acquisition of discounted assets in a lower transaction volume environment contributed to the strategy's resilience.

Overall, private market performance demonstrated intricate dynamics influenced by public market rallies, economic trends, and strategy selection. The report underscores the importance of careful strategy allocation and manager selection for investors navigating these evolving market conditions.

Source: 2023 Global Fund Performance Report as of Q4 2022 with preliminary Q1 2023 data | PitchBook

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