The past 12 months have hosted turbulence not seen by many in a generation. On top of a startling rise in geopolitical tension, interest rates are creeping up to levels not seen since the onset of the financial crisis. Elsewhere, double-digit inflation and supply-chain problems have led many to fear a repeat of a 1970s-style period of soaring prices and energy shortages, while increasing costs have led many companies across industries to conduct mass layoffs. Equity and fixed income markets fell dramatically in front of this backdrop, leaving many investors wondering where to turn next.
These tectonic shifts have also had a profound impact on private markets, from fundraising to portfolio company management to exit windows. Here, we take a look back at some of the key storylines to emerge from an unforgettable year, and their impact on the private market space.
The war in Ukraine, lingering coronavirus concerns in China and surging energy prices damped sentiment significantly in the early portion of the year, leading many market observers and participants to point to a long and protracted recession around the corner. With this in mind, we took a deep dive into the performance of private equity as an asset class in previous downturns, and found evidence that it could provide a degree of resilience in the face of turmoil as public equity and bond markets wilt.
The turmoil in 2022 not only confounded many economic and political assumptions, but also forced a rethink among many about what a healthy, balanced investment portfolio should look like with equity and bond markets no longer diversifying effectively. Is the 60/40 portfolio dead, and what is the role of alternative assets in the new, modern portfolio?
The time of cheap capital and frothy IPO markets came to a shuddering halt in the year, leading to a rethink from many private equity firms and fundraising companies. Suddenly, from an era of plentiful money and wide exit windows, resources became scarce and opportunities to sell investments dwindled, as many market participants looked to keep their powder dry and weather the coming storm.
In this context, secondary market deals have become increasingly common late in 2022, giving equity holders an avenue to sell stakes given the need to realise liquidity, rebalance portfolios or compensate limited partners even as traditional exit windows tightened. For the exiting investor, the benefit is the potential ability to access an early exit from a private investment. For the buyer, the reward could be a prized PE stake at a handy premium discount.
Find out more about secondary markets in private equity.
The cap on inflation which had become a given in the aftermath of the financial crisis, popped off spectacularly in 2022. A combination of surging demand after coronavirus lockdowns, energy price shocks and supply chain problems pushed inflation from near-zero to levels not seen since the early 1980s.
With high inflation typically detrimental to typical equity and fixed income, investors sought refuge in a number of asset classes perceived as inflation hedges, from real estate to infrastructure and commodities. Over the autumn, we analysed how private equity is adapting to the new reality, and how it could provide a hedge against systemic price rises for those who are cash heavy.
Despite the turmoil, many investors are seeing private markets as an opportunity rather than a liability when it comes to their own portfolios. Late in the year, we released our 2022 Moonfare Investor Survey, which polled our community of investors on their attitudes to private markets, thoughts on the wider economy and perception on issues such as access and investment education. And despite the headwinds, more than four-fifths said they are considering making new private equity allocations in the next year despite the downturn.
For more from the report, check out our key highlights, where you will also find a link to the full publication.
Important notice: This content is for informational purposes only. Moonfare does not provide investment advice. You should not construe any information or other material provided as legal, tax, investment, financial, or other advice. If you are unsure about anything, you should seek financial advice from an authorised advisor. Past performance is not a reliable guide to future returns. Don’t invest unless you’re prepared to lose all the money you invest. Private equity is a high-risk investment and you are unlikely to be protected if something goes wrong. Subject to eligibility. Please see https://www.moonfare.com/disclaimers.
* Past performance is no guarantee of future returns.