PitchBook News - Renewed optimism for private markets

What a difference a year makes.

Entering 2023, inflation was running hot, the Fed was hiking rates, and calls for a US recession were ubiquitous as public markets put in their worst performance in years.

Fast forward 12 months and inflation is nearing the Fed's 2% target, rate cuts have been signaled, and soft-landing expectations have sent public equities back to all-time highs.

The economic about-face has renewed optimism for the prospects of private markets going forward. PE and VC deal activity has fallen, but only to pre-pandemic trends.

The higher rate environment has stabilized, affording better entry yields for lenders and debt funds while providing more certainty on interest burdens and discount rates for equity investors. Private fund performance across most strategies appears to have weathered the V-shaped move in public markets.

Yet allocators should be wary of risks in their private market portfolios. Commercial real estate is still undergoing a valuation reset, and if inflation remains stubborn, higher-for-longer rates may induce more discomfort in long-duration asset classes like venture capital.

Banks have continued to tighten belts on lending, putting a strain on deal activity and credit availability. And equity markets appear content not letting in many new members to the publicly listed club, crimping the exit environment necessary to keep the fundraising cycle spinning.

 

The exit environment has been anemic.