Private equity fundraising declined by around 1.2% globally to $554 billion last year, according to data shared by PitchBook.
And the number of funds declined by around 46% to 647 from 1,192.
Funds of $5 billion or more reportedly accounted for almost 50% of 2023’s aggregate fundraising. Global VC fundraising declined significantly in the past year.
There were reportedly 1,533 funds that secured $162.3 billion compared to 2,860 funds and $309.2 billion back in 2022. VC funds of more than $1 billion dropped over 74% to $28.9 billion from about $111.8 billion.
In a separate report from McKinsey, it was noted that during 2023, private markets fundraising, deal activity, and performance remained under pressure, “although there were some notable exceptions across strategies and regions.”
If 2022 was a tale of two halves, “with robust fundraising and deal activity in the first six months followed by a slowdown in the second half, then 2023 might be considered a tale of one whole.”
As stated in the McKinsey report, macroeconomic headwinds persisted throughout the year, “with rising financing costs and an uncertain growth outlook taking a toll on private markets.”
Full-year fundraising continued to decline from 2021’s lofty peak, weighed down by the “denominator effect” that persisted in part due to a less active deal market.
Managers largely held onto assets “to avoid selling in a lower-multiple environment, fueling an activity-dampening cycle in which distribution-starved limited partners (LPs) reined in new commitments.”
Performance in most private asset classes “remained below historical averages for a second consecutive year.”
And decade-long tailwinds “from low and falling interest rates and consistently expanding multiples seem to be things of the past.”
As private market managers look to “boost performance in this new era of investing, a deeper focus on revenue growth and margin expansion will be needed now more than ever.”
Another extensive report from EY, which provides a different perspective, notes that private equity (PE) remained resilient in 2023, as firms “opportunistically deployed capital across a range of verticals, asset classes, and transaction types.”
This was an opportunity “for some funds to acquire top-tier assets at discounted valuations, while for others macro dynamics yielded openings to enter new markets.”
The year closed on “a strong note, with firms announcing deals valued at US$124b, making it the most active quarter of the year by value. Activity was up 11% by value in Q4 versus Q3.”
November, in particular, was a busy month – it was “the second-most active month of the last year and a half, with an aggregate US$71b in deal announcements. Volume in Q4 remained relatively consistent with prior quarters, underscoring the degree to which larger deals are becoming increasingly common.”
According to the EY report, Q4 was “the most active quarter for PE transactions by value as larger deals returned to the spotlight.”