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Private Capital Fundraising Report 2023

For most of the past decade, the total amount of capital raised by private funds increased steadily as economies rebounded from the global financial crisis and participation in the private markets became more widespread. Fund count rose during this time but declined between 2017 and 2019. 2020 introduced new challenges for everyone, which was reflected in slightly lower fundraising that year, but funds bounced back in 2021. This report explores the trends in private capital fundraising that have taken shape in 2022. VC and PE funds drive a majority of activity, but other fund types are adjusting to the market in their own unique ways. Aggregate fundraising value YTD represents 60.9 percent of 2021’s total, which hit a record high of USD 1.4 trillion amid a rebound in the public markets from initial pandemic lows and a material surge in venture funding and Contents Introduction.¹ Subsequent downturns and more difficult dealmaking conditions notably slowed momentum for fundraising activity in 2022. Private market players may see the turbulent state of their public market counterparts as a roadblock to successful exits and must contend with weaker investor sentiment, but fundraising efforts are moving forward.

Private capital general partners (GPs) may experience some hesitation from limited partners (LPs) in response to rougher markets, but the data so far this year does not show a significant slowing in the time taken to close private capital funds. The median time to close dropped from 13.6 months in 2021 to 12.4 months YTD, the shortest median timespan since 2015. Venture capital (VC) and private equity (PE) typically account for roughly 50 percent of global private capital fundraising, and this has not changed YTD. These asset classes responded differently to the market downturn this year. The VC industry bore the brunt of the initial stock market slowdown due to the more speculative nature of VC investments. VC firms responded by becoming stricter with their portfolio companies and pulling back on new investments. Despite significant dealmaking and valuation challenges in the industry, capital raised YTD by VC funds represents 87 percent of VC capital raised in 2021, suggesting LPs are confident that VC firms can manage the current stage in the cycle and still provide material returns over the long run. With their larger pools of capital, PE firms saw a greater number of target companies with freshly lowered valuations available for purchase and improvement. In this way, the macroeconomic challenges that materialized in 2022 presented an opportunity for the asset class. PE funds have raised more aggregate capital this year compared with their VC counterparts and all other fund types examined; however, the total raised represents just over half the PE capital raised in 2021.

Private capital encompasses a variety of fund types with very different strategies. The global median private capital fund size has grown by one-third YTD, exceeding USD 100 million for the first time. Beyond VC and PE, other fund types are responding to market conditions in unique ways. Shaky equities performance and rising interest rates bolstered Treasury yields, driving increased interest in debt funds. The median debt fund size has more than doubled YTD and is now more than six times larger than the median private capital fund size. Secondary markets are piquing the interest of investors that need liquidity for new capital calls, as well as those feeling the denominator effect, as other portions of their portfolios decline in value. The median secondaries fund size has grown 56.2 percent YTD, regaining losses felt in 2021 when public market performance was strong.

Private capital fundraising has slowed this year with fewer funds participating. The previous slowdown in 2020 was shortlived as investors sprung back into action and accelerated activity in 2021. This year, however, the macroeconomic challenges facing public and private markets appear more enduring. Fundraising is often a lagging indicator of market performance, which means the slower deal environment in 2022 could result in further deceleration of fundraising in the coming quarters. This in turn would create a more difficult capital-raising experience for certain types of companies, and investors will be watching valuations and adjusting their strategies accordingly

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