One of the biggest themes in private markets today is the persistence of today’s sluggish fundraising environment. This is a serious and real-time test for nearly all investors. In our view, this is not a short-term disruption. Our latest piece (Navigating the PE Fundraising Cycle) investigates what has driven the fastest run-up in private market valuations in the industry’s history and suggests that, alongside other secular factors, fundraising will be more challenging and take longer to recover than most market participants expect. Optimistically, we believe the ‘NAV overhang’ that we describe in this piece will take at least three more years to work itself out.
For LPs, short of raising the acceptable illiquid allocation program-wide, we believe a major reflationary period for asset prices or persistent strong PE net cash flows is necessary to return to pre-2021 normalcy. We believe preparing for a prolonged period of rebalancing: consider how best to take advantage of this period opportunistically, and carefully and quantitatively assess how to best prioritize your manager relationships. (At Arctos, we have decades of experience building the latest tools to quantify manager skill.)
We believe best-in-class GPs should anticipate an acceleration of present trends. These include the rise of private capital broadly (vs. traditional private equity); increasing competition for top talent and business lines that scale; increasing pressure for industry consolidation; and deal and exit environments that require creative investments in firms’ investing operations edge (e.g., via data, technology, and AI) and creative ways to generate exits.
You can find the piece here (Password: Arctos1!). Please reach out with any questions.