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Navigating the Private Capital Landscape: Q1 2023 Global Fund Performance Report

Key Takeaways from the Q1 2023 Global Fund Performance Report
Navigating Private Equity Returns

The private capital industry has experienced a remarkable transformation over the past decade, with substantial growth in asset under management and a widening range of investment strategies. However, the recent market downturn has presented challenges for private market investors, with performance across asset classes retreating from the exceptional highs of 2021.

The Q1 2023 Global Fund Performance Report, published by PitchBook, provides valuable insights into the current state of the private capital industry. The report highlights key trends in performance, valuation, and investor sentiment, offering valuable guidance for investors navigating this dynamic market.

Key Performance Trends

  • Private equity: PE funds returned 4.6% in Q1 2023, after dipping into negative territory in Q2 and Q3 2022. The one-year horizon IRR for PE funds flipped back to positive 1.0% in Q1 2023 after one quarter in the negative at -1.9% in Q4 2022.

  • Venture capital: VC fund returns continued to lag other private market asset classes in Q1 2023, with the strategy remaining in negative territory for the third consecutive quarter as measured by one-year horizon IRRs. The one-year horizon IRR for VC funds was -14.5% in Q1 2023, albeit inflecting from a trough -17.8% return seen the previous quarter.

  • Real estate: Real estate's rolling one-year IRR hit a 12-year low of 0.8% in Q1 2023. The one-year horizon IRR for real estate funds in North America was 1.3%, while those in Europe were -1.6%. "Rest of world" vehicles have been outperforming, with a one-year horizon IRR of 4.5%.

  • Real assets: Real assets have performed well in recent quarters, with a one-year horizon IRR of 1.3% in Q1 2023. This is in contrast to the broader private capital market, which has seen performance retreat from the highs of 2021.

Valuation Adjustments and Investor Sentiment The recent market downturn has led to valuation adjustments across private capital asset classes. This is particularly evident in the venture capital space, where valuations have come down significantly from their peak levels in 2021.

Investors are also exhibiting more cautious sentiment, with a focus on due diligence and risk mitigation. This is reflected in a slowdown in fundraising activity and a heightened focus on operational resilience.

Navigating the Current Environment Despite the challenges posed by the current market environment, there are still opportunities for investors in the private capital space. Investors who are able to identify and invest in high-quality managers with demonstrated track records are well-positioned to weather the downturn and benefit from the long-term growth potential of private markets.

Key Takeaways

  • The private capital industry is experiencing a period of performance retrenchment following the exceptional highs of 2021.

  • Venture capital funds have been particularly hard hit by the downturn, with valuations declining significantly.

  • Real assets have been a relative bright spot, with positive performance in recent quarters.

  • Investors are exhibiting more cautious sentiment and are focusing on due diligence and risk mitigation.

  • Opportunities still exist for investors who can identify and invest in high-quality managers with demonstrated track records.

Author: Ethan Khatri. Managing Director, Private Equity & Venture Capital

 

References

  1. PitchBook. (2023, October 3). Q1 2023 Global Fund Performance Report. PitchBook Data.

  2. Preqin. (2023, September 27). Preqin Global Private Equity & Venture Capital Report Q2 2023: A Quarter of Correction and Reassessment. Preqin.


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