Raymond James Private Markets’ survey highlights longer fundraising times and a growing indifference towards ESG factors
Raymond James Private Capital Advisory has released its 2023 Private Markets Investor Survey. The survey explores the Raymond James team’s analysis of limited partner (LP) sentiment regarding investment opportunities across private markets in 2022 and 2023. Over 500 LPs from North America, Europe, Asia and the Middle East were canvassed as part of the report.
The covered topics included: performance, the speed and scale of capital development, design and implementation of investment programmes, investor sentiment and concerns for the remainder of 2023 and the criteria for fund selection, including the significance of environmental, social and corporate governance (ESG).
2022 was characterized by a significant influx of General Partners (GPs) coming to market, but this wave of funds was met by LPs facing concentration concerns and pressure to meet re-ups. Despite the increased number of funds in market, the amount of capital raised in 2022 was the lowest since 2016, and the number of funds raised was the lowest since 2014.
The length of time spent fundraising increased, particularly for emerging managers, as LPs focused on established managers who have successfully navigated multiple economic cycles. The average fundraise duration for European and North American fundraises increased to 24 months.
Investors reported a significant decline in private equity (PE) distributions as exit markets closed, primarily caused by inflation and interest rate uncertainty. PE investment also slowed as corporates and financial sponsors faced an increase in the cost of capital, and the availability of debt financing decreased, in the wake of banks sitting on “hung deals” and unable to offload syndicated loans.
The United States leveraged loan issuance in 2022 totalled $850 billion, which represents a 35% drop from the record volume set in 2021, opening the opportunity for private credit and alternative lenders to step in.
Assessing the systemic impact of Silicon Valley Bank’s collapse, the rescue of Credit Suisse and LPs concerns for 2023
Sunaina Sinha Haldea, global head of Private Capital Advisory, said “LPs are exercising more caution now than at the beginning of 2022, and this trend is expected to continue because of the macro-economic environment, characterized by rising interest rates, higher cost of capital, and [a] slowing economy. Moreover, the fall of Silicon Valley Bank, other U.S. regional players, and Credit Suisse risks denting investor confidence in an already constrained environment.”
LPs with exposure to venture capital (VC) and tech strategies are already experiencing an immediate impact in the wake of collapse. Investors have reported an increase in capital calls as GPs prepare for difficulties in accessing deposits and subscription line financing. Consequently, LPs have adopted a cautious approach to tech and VC funds and co-investment transactions.
LPs are repositioning to capture the upside of the next economic cycle; LPs shift focus towards lower and middle-market PE, private credit and distressed / Turnaround strategies
Investors are shifting their focus towards lower and middle-market PE as they see an opportunity for strong performance in smaller companies going forward. 40% of investors expected to increase their allocation to the lower middle-market, in contrast with their view of large-cap strategies, which saw 28% of LPs expect to decrease their allocation compared to the previous year. This trend follows a particularly busy fundraising window for Large Cap PE managers – some of whom have notably experienced challenges as they looked to raise their largest ever funds.
As traditional lenders retreat from the market, investors also look to cycle into private credit, with 50% of LPs increasing their allocation to this asset class. Similarly, infrastructure also gained traction as investors seek to hedge against inflation. Distressed/turnaround strategies also saw increased allocations as investors anticipate a growing need for liquidity and refinancing, with 59% of LPs are increasing their allocation to this strategy.
Sunaina Sinha Haldea notes that, “We’ve seen a rise of interest in late primaries and decondaries strategies, including deal-by-deal SPVs, as well as a focus on value-oriented GPs that acquire businesses at lower prices and flex their operational muscle to drive value.”
LPs shift priorities towards performance and strategy fit and away from ESG
LPs are focusing more on allocating their portfolios and selecting strategies that will perform well in current and future market conditions. Consequently, LPs are prioritizing track record and strategy fit when selecting funds, which has led to a significant decline in the importance of ESG in fund selection. LPs who view ESG as “Not Important” increased from 7% to 21%, while those who see it as “Very Important” decreased from 43% to 19%.
About Raymond James Financial, Inc.
Raymond James Financial, Inc. (NYSE: RJF), is a leading diversified financial services company providing private client group, capital markets, asset management, banking and other services to individuals, corporations and municipalities. The company has approximately 8,700 financial advisors. Total client assets are $1.21 trillion. Public since 1983, the firm is listed on the New York Stock Exchange under the symbol RJF. Additional information is available at raymondjames.com.
Data taken from Preqin, as of 31 December 2022
Refinitiv LPC’s Leveraged Loan Monthly (Year-end 2022)