Private Markets Turn the Volume Down

“There’s no such thing as a good idea or bad idea in the investment world. It’s a good idea at a price, it’s a bad idea at a price.”

– Howard Marks


McKinsey highlights key trends in private markets:

PE deal making slowed in 2H22 – Although PE deal volume and deal count declined by 26% and 15%, respectively, 2022 remained the second most active year on record.

Global fundraising declined – Global private markets fundraising declined by 11%, with fundraising in Asia & Europe declining by 39% & 28%, respectively. Since 2017, fundraising in Asia has declined 16% per year.

Capital flowed to the largest funds – Funds over $5 billion saw a 51% increase in capital raised in 2021, while sub-$5billion funds saw a 28% decline over the same period. First-time fund launches decreased by 40%.

PE buyout entry multiples declined – Buyout multiples fell from a record 13.2x EBITDA in 2021 to 12.9x in 2022, while public market multiples declined from 14.6x to 12.0x. Looking at individual subsectors, financial services and information technology experienced the largest multiple declines, while raw materials and resources saw multiple expansion due to rising commodity prices.

ESG tailwinds – ESG AUM exceeded $100 billion for the first time in 2022, and has grown at 35% per year over the past decade, far outpacing the rate of AUM growth in the broader private markets.

If we’ve entered a different macroeconomic regime for investing, where the traditional relationship between stocks and bonds has changed, what role Private Equity can play in a diversified portfolio? KKR believes that Private Equity, like Private Credit and Real Assets, can be additive to traditional portfolios, especially for investors who are concerned about inflation and/or do not face meaningful near-term liquidity constraints.

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