GP Trends 2022

Investec’s 12th annual GP Trends report reveals what’s on the mind of the private equity market during a period of profound uncertainty.

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We surveyed over 150 senior private equity professionals to reveal how they are thinking about the fast-changing landscape.

This year’s GP Trends survey reveals an industry at a turning point. 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.The report analyses responses from more than 150 private equity professionals, also featuring insight from in-depth interviews with a select group of senior leaders.

"Currency volatility is a universal risk and currency risk management should be a priority for all, "Kim Hunt, head of Fund Finance SA 

Key findings

55%

of PE managers who expect their fund to be 50%-100% larger than its predecessor have employed a female partner in the last year (vs 21% in firms that expect their next funds to be flat).

71%

believe that rising inflation and interest rates will decrease the availability of finance for deals.

46%

expect the size of their next fund to be 25%-50% larger than its predecessor.

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2022 GP Trends report

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2022 GP Trends Report

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The GP Trends Report findings reflect a shift in the market, with respondents preparing for more covenant breaches, lower asset valuations, tighter capital markets and lower leverage multiples.

Executive Summary

 

The GP Trends Report findings reflect a shift in the market, with respondents preparing for more covenant breaches, lower asset valuations, tighter capital markets and lower leverage multiples.

“Across the economy businesses are facing the converging headwinds of supply chain bottlenecks, rising energy prices, tight labour markets and rising interest rates,” says Flor Kassai, Partner and Head of Buyouts at Inflexion Private Equity.

Inflation and interest rates are top of the agenda for GPs, with 71% expecting rising inflation and interest rates to decrease the availability of finance for deals and 55% are anticipating more covenant breaches during the next 12 months. More than a third (36%) of GPs are considering lowering leverage multiples to help manage cash burdens as interest rates rise.

Half of the respondents, meanwhile, expect their asset valuations to be lower over the next 12 months and 41% have seen broken deal processes during the last 12 months.

This picture stands in stark contrast to red-hot markets of 2021 when assets were flying off the shelves, liquidity was abundant and valuations full.

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