Real estate venture capital firms1/29/2024 ![]() ![]() Private markets fundraising in North America increased by a modest 2 percent year over year but declined in Asia and Europe by 39 percent and 28 percent, respectively. ![]() North American fundraising was resilient Europe and Asia faced challengesįundraising results differed notably across geographies, more so than in previous years. Despite these challenges, 2022 is likely to be the second-best fundraising year on record (after all data is reported), demonstrating-thus far-discipline and longer-term thinking by LPs. Macroeconomic headwinds, including rising inflation and interest rates, coupled with negative public market performance (−17.7 percent) triggered the aforementioned denominator effect, and LPs scaled down new commitments. Real estate (−23 percent) and private equity (−15 percent) declined most precipitously from 2021’s record highs, while private credit (+2 percent) proved more resilient. Global private markets fundraising declined by 11 percent to $1.2 trillion. After more than doubling year over year in 2021, multifamily deal volume fell 29 percent in 2022, accounting for nearly half of the asset class’s overall decline in deal activity. Like PE deal making, first-half real estate deal making continued close to the record-setting pace of the second half of 2021, but second-half volumes declined precipitously. Real estate deal volume declined 20 percent to $1.1 trillion, also the second-highest year on record. New platforms comprised 28 percent of total transactions in 2022, 14 percentage points lower than five years ago. Add-on deals, which tend to be smaller, continued to gain share as a percentage of total deals. The number of buyout and growth deals greater than $500 million decreased by 33 percent. The deal-making momentum of 2021 continued through the first half of 2022, and despite the striking slowdown in second-half deal activity, 2022 remained the second most active year on record. Deal making slowed in the second halfĪfter a frenzied 2021, private equity (PE) deal volume decreased 26 percent to $2.4 trillion, while deal count fell 15 percent to just under 60,000. Though few LPs thus far have abandoned commitment plans entirely or sold portfolios as they did 15 years ago, many have pulled back, particularly from smaller and newer funds, causing fundraising to decline. The discrepancy this year drove private market allocations higher on a percentage basis across institutional portfolios-closer to preexisting targets for most, and above targets for many limited partners (LPs)-triggering the so-called denominator effect. Still, private markets outperformed public markets on the way down, whether due to truly more resilient portfolios, a lag in timing, or manager discretion over their marks (private markets tend to mark up less quickly during ascending markets and mark down less quickly in falling markets). Private markets deal volume plummeted, performance declined, and valuations fell-dramatically in certain sectors. Banks began to pull back, unwilling or unable to lend. This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Pontus Averstad, Alejandro Beltrán, Marcel Brinkman, Paul Maia, Gary Pinshaw, David Quigley, Aditya Sanghvi, John Spivey, and Brian Vickery, representing views from McKinsey’s Private Equity & Principal Investors Practice. In the private markets, first-half deal activity softened but subtly so, nearly matching the record-setting pace set in 2021. In the first half of 2022, central banks fought roaring inflation by sharply raising interest rates, and public market valuations cratered. ![]() Markets climbed higher still, awash with central-bank-induced liquidity. In almost every regard, 2021 was an exceptional year (as we highlighted in last year’s report) but it was not a trend breaker. Even in 2020, when activity stalled briefly during the early months of the COVID-19 pandemic, private markets hummed again in the second half. Each year since its inception, this annual publication has discussed new records in fundraising and deal flow while celebrating strong performance across asset classes. Interest rates stayed low, credit availability was high, and valuations rose consistently. Private markets have enjoyed strong tailwinds since the depths of the Global Financial Crisis (GFC). McKinsey Global Private Markets Review 2023: Private markets turn down the volume (74 pages) The music didn’t stop, but someone turned it way down ![]()
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