Welcome to the Verus Private Equity Outlook summary.
Our main area of focus is on the impact of a higher-rate-for-longer scenario on the asset class.
We also examine how the rising rate environment has affected private markets so far.
Private Equity deal activity remains weak in the face of rising interest rates.
Private Equity valuations fell due to a multitude of factors,
deterring Private Equity sellers from transacting.
Until a more stable environment has been established, deal activity will likely remain subdued.
In many cases, with the cost of debt rising, the proportion of equity has also risen.
Exit activity is down a considerable margin year-over-year.
Sponsors are opting to retain their portfolio companies instead of selling them at less-favorable prices.
Public listings were closed due to the decline in public equities and risk premiums in 2022,
but upcoming IPOs and market rebound could lead to increased IPO activity.
A higher rate rate for longer scenario may benefit prospective investors.
Deal activity may pick up alongside motivations borne out of stress and liquidity needs.
Investors may find opportunities in stressed situations.
Buyers will have leverage to push for friendlier deal terms and may benefit from discounted purchase prices.
We expect distressed opportunities to increase, but not to the level of prior market downturns.
With decreasing premiums on risk, there are reduced inflows to private equities.
With higher returns on fixed income assets, the risk-return premium of Private Equity has become less attractive.
Fundraising has decreased across most of U.S. Private Equity and Venture Capital, especially in the late-stage.
General Partners who remain active may find less-competitive markets to be beneficial.
Liquidity needs may result in an uptick of alternatives to full monetization events.
Fundraising difficulties have caused General Partners to lean into alternative avenues
of generating liquid for their existing LP base, one being continuation vehicles.
Secondary investors may benefit from persisting capital overhang that may widen with increasing supply.
The execution of minority sales may also increase for GPs who desire to prolong their ownership
in anticipation of a more favorable exit environment.
Thank you for listening.
Read our full Private Equity Outlook at verusinvestments.com/research.