This year’s GP Trends survey reveals an industry at a turning point. We surveyed over 150 senior private equity professionals this year to reveal how they are thinking about the fast-changing landscape – with headwinds such as inflation, interest rate hikes and rising energy costs. After record levels of fundraising and deal activity in 2021, private equity firms are recalibrating their expectations against a more challenging backdrop this year. Inflation and interest rates are at the top of the agenda, with 71% expecting these factors to decrease the availability of finance for deals, and 55% of respondents anticipating more covenant breaches over the next 12 months.
However, most respondents were cautiously optimistic overall. The majority of the GPs surveyed this year expect to deploy more capital than in 2021, and fewer than 10% believe that returns will be lower than last year. In response to the macro-economic headwinds, some respondents expect the fundraising market to become more bifurcated over the next 12-24 months – with top-performing funds expected to raise a disproportionate amount of capital.
A quick snapshot
While this is undoubtedly a challenging period for PE, the industry has a proven ability to deliver value for investors through market cycles, and the survey findings show that a large number of GPs still expect to deliver better returns for clients and raise larger funds over the next 24 months.
What has been particularly encouraging about this year’s survey findings has been the progress PE has made on diversity and gender equality. While there is still a way to go, the number of women and ethnic minorities working at partner level in the industry is growing, and with the survey research suggesting that firms prioritising diversity within their organisations are better equipped to attract and retain talent, the outlook for industry diversity is positive.
Also striking is the link this year’s report finds between firms that expect to be the most successful in the fundraising market and firms following environmental, social and governance (ESG) best practices. The findings also show that most GPs believe implementing ESG at the portfolio company level goes to value on exit, and that ESG is a key influencer of investor decisions when it comes to backing new funds.
