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Q2 2023 Global Private Market Fundraising

The Q2 2023 Global Private Market Fundraising Report from PitchBook provides a comprehensive overview of fundraising trends across private capital strategies, including private equity, venture capital, real estate, real assets, private debt, funds of funds, and secondaries. The data indicates fundraising activity declined 30.9% in the first half of 2023 compared to last year, dropping from $1.6 trillion to $1.1 trillion raised.


While commitments remain down from the highs in 2021, the private markets continue to see significant capital inflows, exemplifying their growth as an asset class. Allocators still view private strategies as a means to diversify from volatile public markets and capture illiquidity premiums. That said, the fundraising environment grew more selective, with increased scrutiny on manager track records, fees, and alignment of interests.


PitchBook's report contains detailed segmentation of the data by fund size, sector, investment strategy, geography, and more. This enables deeper analysis of the nuances within each private capital vertical.


Key Global Private Capital Fundraising Takeaways:


- Private equity (PE) fundraising slowed to $455 billion, a 16.6% decrease from last year. North America accounted for nearly 70% of capital raised, but Europe gained share, responsible for 24% on several large closes.


- Venture capital (VC) saw the steepest decline, with fundraising plunging 47% to $185 billion globally. Mega-funds raising over $1 billion dried up compared to last year, contributing to the massive drop.


- Real estate commitments fell 19.2% to $135 billion. However, Blackstone Real Estate Partners X closed on a record $30 billion, over half the industry total for H1 2023.


- Real assets decreased even further, down 84.5% to just $27 billion raised. Infrastructure vehicles shrank, with none above $1.3 billion closing so far this year.


- Private debt fundraising declined 18.8% to $215 billion, proving resilient versus other strategies. Mezzanine funds took in an unusually high 30.5% share amidst strong demand.


- Secondaries saw commitments increase 13.5% to $59 billion. But Q2 experienced a slowdown following Blackstone's massive Q1 closes.


- Funds of funds (FoF) dropped 37.8% to $31 billion raised. Venture FoFs declined but remain active. Traditional FoFs face growing competition from emerging vehicles options.



Private Equity Fundraising


In private equity, 129 funds secured $107 billion in commitments in Q2 2023, per PitchBook. This modestly outpaced Q1 2023 but remains significantly below last year's figures. In a challenging fundraising market, large PE funds have fared better, responsible for 40% of capital raised so far in 2023.


However, emerging managers still made inroads, as LPs sought differentiated approaches and looked to avoid overcrowded megafunds. In fact, first-time funds took around 10% of PE capital raised in H1 2023 compared to just 5% last year. Overall, middle-market funds between $100 million and $5 billion raised over 60% of commitments, indicating increased appetite for smaller, specialized players.


Geographically, North America PE funds gathered nearly 70% of global industry commitments. But Europe gained ground, with its share rising to 24% by mid-year 2023 versus 14% last year. Large European megafunds in market are expected to further boost the region's share. Asia maintained a steady 7% share of global PE fundraising.


While PE fundraising slowed, dry powder still reached record levels, finishing 2022 at $1.3 trillion. PitchBook warns this overhang could dampen future returns or lead managers to deploy capital in riskier deals. However, others argue high dry powder positions PE firms to pursue deals in a discounted market.


Venture Capital Fundraising


Global VC fundraising plunged 47% in the first half of 2023 according to PitchBook's report, marking one of the most challenging periods ever for the industry. Just $77 billion was gathered across 592 VC funds closed so far this year. The absence of mega-funds raising over $1 billion largely explains the massive drop. These large funds accounted for 42% of VC fundraising last year but only 15% so far in 2023.


Many LPs found themselves overallocated to VC given the recent boom years. High prices and few exits left them reluctant to commit further. Additionally, larger VC funds have underperformed during the downturn, given their tendency to invest at later stages versus smaller funds. This also reduced appetite for mega-funds.


Mirroring broader private capital trends, North America made up the majority of VC funds raised at 71% through mid-2023. Asia accounted for 21% driven by China-based investors. Europe's share declined slightly to 7%.


PitchBook's analysis shows VC dry powder from prior years remains near record highs at $574 billion. But poor exit options and falling startup valuations caused total VC assets under management (AUM) to drop 4% in 2022 - the first annual decline since records began. Continued markdowns could pressure AUM further in 2023.


Real Estate Fundraising


In real estate, 78 funds secured $58 billion in H1 2023 per PitchBook's report, recovering moderately from a very slow Q1. But commitments still dropped 19% versus last year. The outlier was Blackstone's record $30 billion Real Estate Partners Fund X closing in April 2023.


Excluding Blackstone's mega-fund, fundraising sank to just $28 billion - one of the lowest half-year totals in over a decade for real estate. Investors focused commitments into larger, experienced managers they perceived as safer bets. First-time real estate managers struggled, raising only $1.1 billion globally.


Real estate megafunds over $5 billion took in $37 billion or nearly two-thirds of industry commitments in H1 2023. This concentration into the largest players was even more pronounced than in private equity. Among strategies, opportunistic funds dominated with 70% share driven by Blackstone.


Geographically, North America real estate vehicles captured 75% of capital raised. Asia maintained a 17% share, while Europe declined to just 5%. By sector, multifamily continued gaining favor along with logistics real estate. Surprisingly, life sciences also emerged as an area of interest among top real estate funds.


PitchBook estimates global real estate dry powder finished 2022 at $292 billion, just shy of its record high. Strong fundraising by core managers positions the industry to acquire assets as prices moderate. But competition for deals may intensify, especially in sought-after sectors.


Real Assets Fundraising


In real assets, fundraising crashed through the first half of 2023 based on PitchBook's report. Just $9 billion was raised across 20 closed-end funds, an 84% decline from last year. No funds larger than $1.3 billion closed, whereas $5 billion+ real asset funds were routine in the past. Investors grew wary of volatile commodities and oil markets given economic uncertainty.


Surprisingly, emerging managers bucked the trend and raised more capital than experienced managers for the first time in nearly a decade. Newer entrants secured $5.5 billion or 60% of real assets commitments. Geographically, North America still captured half of real asset funds versus its typical 80%-plus share.


By sector, infrastructure remained dominant but dropped to just 68% share versus its normal 90%+ chunk. Uncommon sectors like agriculture/timber and metals/mining gained presence. And funds with an energy transition focus continued gaining traction.


The report notes real assets performance has generally lagged fixed income and equities since 2010. Disappointing returns likely contributed to waning LP interest. While PitchBook expects moderate improvement in capital flows, real assets fundraising will remain well below historical levels absent an economic catalyst.


Private Debt Fundraising


According to PitchBook, private debt fundraising showed resilience amidst broader private capital declines. In H1 2023, 68 funds closed on $99 billion, down just 19% from last year's record half-year result. Full-year 2022 private debt fundraising topped $265 billion - a high water mark.


Direct lending funds raised 29% of capital so far in 2023. But unusually, mezzanine strategies brought in even more at 31% share. Mezzanine loans are popular with PE sponsors given reduced senior debt availability. Distressed debt fundraising sank to just 2.5% of the total, replaced by 22.5% flowing to more flexible special situations strategies.


By sector,PitchBook recorded continued growth for real estate and infrastructure debt vehicles. Their share of private debt fundraising hit 8.4% and 7.3% respectively. On the geographic front, North America maintained a dominant 73% share of global commitments. But Europe gained ground, responsible for 25% of capital versus its typical 15%-20% share.


Dry powder in private debt finished 2022 at a record $406 billion according to PitchBook's report. With debt markets still disrupted by inflation and rising rates, these capital reserves position firms to fund attractive senior and subordinated lending opportunities. But excessive dry powder also raises concerns of lower returns ahead.


Secondaries Fundraising


Secondaries funds secured $35 billion across 22 vehicles in H1 2023 per PitchBook, already exceeding 60% of last year's total. Q1 witnessed robust secondaries activity, while Q2 slowed considerably with the absence of Blackstone's mega-funds. Overall, secondaries fundraising expanded 13.5% versus last year, one of the few bright spots in private capital.


PitchBook's report shows secondaries dry powder ended 2022 at $117 billion - another record high. Managers appear poised to deploy this capital with secondaries deal flow picking up. Improved pricing has brought more LP portfolio sales to market after last year's transaction lull. Over 80% of secondaries capital raised in H1 2023 targeted buyout assets, but secondaries firms still sought diversification.


In fact, 22% of secondaries funds focused solely on private debt assets, dramatically up from 2% historically. Real estate and infrastructure secondaries fundraising also grew to represent 9% and 6% share respectively. By region, North America secondaries funds dominated with 82% of capital raised.


Secondaries deal flow is projected to keep surging given high LP turnover rates and GPs looking to crystallize holdings. PitchBook expects the wall of secondaries dry powder coupled with strengthening deal volumes to support an active period for secondary acquisitions.


Funds of Funds Fundraising


Funds of funds (FoF) witnessed a significant 38% drop in fundraising for H1 2023 per PitchBook's report. Just $12 billion was gathered across 26 FoF vehicles, down from $20 billion last year. The declines were concentrated in venture capital FoFs, which plummeted 55% to $4 billion raised after riding the VC boom.


Traditional fund of funds have seen declining activity due to emerging options like co-investment programs, separately managed accounts, and retail fund platforms. These enable more customized private market exposure. FoF managers responded with innovations like evergreen fund structures and joint ventures, but momentum stalled in 2022-2023.


By region, North America FoFs maintained their majority share of fundraising at 58% in H1 2023. Asia-focused vehicles captured 36%, up from a typical 25% share, showing stronger relative appetite. The dominance of VC FoFs dropped sharply, with its share falling from 40% last year to just 23% so far in 2023.


According to PitchBook, funds of funds dry powder peaked at $165 billion in 2021 before declining marginally. High reserves combined with waning LP commitments could put downward pressure on future returns. But diversification and portfolio construction benefits still make FoFs valuable to novice private capital investors.


Conclusion


In summary, the Q2 2023 Global Private Market Fundraising Report provides data-driven insights into capital flows across PE, VC, real estate, real assets, private debt, FoF, and secondaries. The sweeping declines reveal a selectivity taking root as LPs grow cautious in their allocations. But pockets of strength point to strategic opportunities, and private markets continue to consolidate their position in investor portfolios. As dry powder accumulates, the fundraising slowdown also sets the stage for potential outsized returns should valuations stabilize. The full report contains detailed segmentation for geography, fund size, strategy, and more - providing a valuable reference for tracking private capital market dynamics.

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