Private Fund Trends Report 2022-2023

Despite the strong start to the year, by the end of 2022, total reported dollar commitments from public plans totaled $203.7 billion, a narrow 1.7% YoY increase from the 2021 total ($200.4 billion). The year also saw a shade fewer public pension plan investors report an allocation to the private markets, 231 versus 233.

The Denominator Effect

A major private markets talking point for institutional investors in 2022 was the denominator effect.

When the public markets began to drop in the first half of the year, investors saw their private markets holdings occupy a larger overall percentage of their portfolios because private fund valuations lag public markets peers. Due to stringent portfolio governance models and target allocations, investors who were now overallocated to the private markets were forced to scale back their pacing plans for the year.

It’s likely that these unforeseen circumstances contributed to the lack of growth in overall commitment activity from public plans to the private markets.

Inflation and Rising Interest Rates

Inflation and rising interest rates in 2022 drove demand from pension plans into very specific segments of the private markets. Fears of inflation combined with a long-term trend away from oil & gas energy strategies meant that allocators were targeting infrastructure strategies in their real assets portfolios.

By historical standards 2022 was an excellent year for real assets fundraising from public pension plans. The asset class saw total reported commitments reach $30.5 billion, a 16.9% increase from 2021. The number of commitments reported also saw a strong 26.7% YoY increase.

Secondaries

Despite ending the year down from a high watermark in 2021, 2022 was the second-largest year on record for secondaries market activity with an overall transaction volume of $103 billion according to investment bank Evercore. In terms of dry powder, Evercore estimates that the market is sitting on a record $131 billion.

LP-led transactions accounted for $55 billion of overall secondary transaction volume in 2022, down 16.7% from 2021. GP-led transaction volume reached $48 billion, down 29.4% YoY. That said, demand remains high for the liquidity offered by secondaries and the market will continue to grow in the long-term. Worth noting, 2022 saw LP-led overtake GP-led as the majority secondaries transaction type, a trend that will likely continue in the foreseeable future.