Private equity and venture capital investment expectations decline sharply: Acuity Knowledge Partners’ survey

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Private equity and venture capital investment expectations decline sharply: Acuity Knowledge Partners’ survey
Private equity and venture capital investment expectations decline sharply: Acuity Knowledge Partners’ survey

Acuity Knowledge Partners’ study shows fundraising will likely decline this year, mainly due to concerns about macroeconomic factors such as supply-chain constraints, inflation and the war in Ukraine.

Acuity Knowledge Partners has released findings from the second edition of its global Private Equity (PE) and Venture Capital (VC) Survey.

Respondents from firms across North America, EMEA and Asia Pacific offered insight on investment opportunities, concerns and their business outlook for 2023 amid the current turbulent economic environment. The study shows fundraising will likely decline this year, mainly due to concerns about macroeconomic factors such as supply-chain constraints, inflation and the war in Ukraine. Most respondents (55%) expect fundraising to decline in 2023, far more than 6% in 2022.

The proportion of respondents who are unsure whether they will raise new funds increased by 50%, to 30% in 2023 from 20% in 2022 according to Acuity Knowledge survey. As investing confidence deteriorates, the number of professionals who believe investment opportunities are increasing has declined substantially, to 41% from 67% as per Acuity Knowledge.

“Rising interest rates dented fundraising expectations in Q2 2022, and expectations are likely to remain low until Q3 2023. However, the sector seems to believe this is a passing trend, as expectations for raising new funds beyond Q3 2023 remain strong. Against this backdrop, competition has increased, especially for smaller funds, while large funds remain favoured by limited partners (LPs)”, said Sumit Chhabra, Managing Director, and Co-head of Global Delivery at Acuity. “The sector believes investing opportunities may decline in 2023, but the level of difficulty in raising funds is likely to remain the same as last year. As the effects of the pandemic wane, we observe a change in investing preferences, especially in tech areas, such as a recovery in investment in travel tech.”

“Sentiment towards fundraising took a dive this year, reflecting rising interest rates and geopolitical tensions. With a significant amount of dry powder already, the PE and VC sector is expected to at least maintain these levels, if not increase them, this year. The survey results confirm that LPs are more cautious, posing a challenge for the sector”, added Pratap Narayan Singh, Head of Private Markets at Acuity.

Key findings:

  • Developments in the tech space, such as the stock-market collapse, increased layoffs and the downfall of crypto investing, have made VC firms wary. This is likely driving preferences for non-tech sectors, with respondents indicating an increase in interest in financial services, retail and manufacturing. These sectors are also attracting tech-driven transformation, but they are not entirely tech-dependent and have pent-up demand from during the pandemic.
  • As the world recovers from the pandemic, the tech areas favoured amid the lockdowns are declining and those that lost favour are returning: health tech has witnessed nearly a 39% decline in preference, while travel tech is making a comeback, with a 60% increase in interest from PE and VC firms.
  • There is a significant decline in sentiment towards investing, with the PE and VC sector aware of the economic crisis developing. Nearly two-thirds of the respondents believe valuations will decline, a sixfold increase from 2022, as global indices face increased volatility this year and private markets struggle with a staggering number of valuation revisions of portfolio companies.
  • ESG is increasingly influencing PE and VC operations as concerns over climate change, corporate governance and social disparity continue to heighten. Nearly 69% of the firms surveyed have an individual designated to deal with ESG-related matters, and 63% of the respondents have an ESG committee to monitor portfolio performance. Additionally, 60% of the firms publish ESG, CSR or sustainability reports, underscoring the sector’s commitment to meeting ESG-related targets.

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