PitchBook News - VC losses continue

In 2022, the delay in private markets following the public market downturn caused significant angst for LPs, as, on paper at least, they found themselves overallocated to the assets whose values had not yet declined.

Many allocators who felt this denominator effect during the global financial crisis made adjustments that allowed either a wider drift from targets or more time to be out of compliance with policies so the private market allocations could have a chance to realign to a new valuation regime.

Yet the effect was still a big topic of conversation in 2022, as secondaries buyers hoped LPs would be offering up stakes in an attempt to get back to targets, and GPs fundraising got the cold shoulder from LPs who did not want to push their overallocation further away from targets.

The markdowns that have taken place may have taken some of the pressure off LP portfolios, but some separation between public and private market valuations appears to remain.

Whether the gap will be closed by public markets rising or private markets falling—or somewhere in the middle—remains to be seen.

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