It’s the middle of May and the full-year results are in. For publicly listed companies it would be yesterday’s news. Tax filings have been made and many firms even reported their first quarter. But in private equity, with its long-term perspectives, the ‘old’ data still can be worthy of a cover story, certainly when it comes to a year like 2022, marked by war, inflation and surging interest rates.
Come the end of April, early May, private equity firms worldwide, including those in Luxembourg, eagerly anticipate the release of the Burgiss Report on global private capital. New Jersey-headquartered Burgiss is a global provider of data and analytics solutions focused on private capital. Its database comprises more than 12,900 private funds with capitalization of more than 10 trillion dollars. And, so say industry insiders, it’s data is considered reliable because it is LP-based, meaning it’s from the actual investors.
Anyone following private funds knows that it is a market with limited transparency and marked by low levels of liquidity. The report makes fascinating reading. Its numbers also have value as a benchmark for private equity and debt funds such as those offered from Luxembourg.
Private assets lost 4.1% last year
So how did the market do? Global private equity funds declined 8.2 per cent last year, while the return on global private debt funds was a positive 3.1 per cent. The one-year return for global private real assets funds (real estate, infrastructure and natural resources) was 8.2 per cent. For venture capital, 2022 was brutal. They lost 18.4 per cent last year.
On aggregate, global private capital funds shed 4.1 per cent. Not bad, an outsider might say, given the losses in stock and debt markets last year. But when considering the double-digit track record of the last two decades, such a meagre return may be hard to swallow. Private markets, like other financial markets, also are a tough business.
Overall valuations in global private equity declined to 3,206 billion dollars, weighed down by 280 billion dollars in unrealized losses and supported by 106 billion in net capital flows.
In private markets, a one-year horizon is what a second may be to day traders in the stock market. So let’s take a look at the performance in the last ten years, between 2012 and 2022. Here, global private capital yielded 13.5 per cent a year, led by venture capital (19.3 per cent) and buyout funds (15.4 per cent). Private debt funds yielded 8.6 per cent, while real estate funds were up 8.7 per cent on average over the last ten years.
Information technology dominates
The Burgiss report also presents a breakdown by industry in terms of holdings. Private equity funds are led by information technology, which takes up 35 per cent in terms of valuation. In venture capital, that’s at a level of 51 per cent. Industrials, consumer goods and health care are also seen as top categories.
In private debt, the breakdown is more diverse. IT, at 13 per cent, comes after financials (19 per cent), utilities (16 percent) and industrials (14 per cent).
The geographic breakdown shows that 63 percent of all private assets are held in the US; 20 per cent in Europe; and 10 percent in Asia. The report did not provide a breakdown by countries.
Net cash flows in private markets began showing inflows again in 2019. In 2022, average net cash inflow in private markets was 106 billion dollars, the balance between 356 billion in distributions - outflows - and 462 billion in contributions, or inflows.
Plenty of dry powder available
Another data point specific to private markets is dry powder. In the context of private equity, dry powder refers to the amount of capital that private equity firms have available to invest in companies. It represents the funds that have been committed by limited partners (such as institutional investors, pension funds, and high-net-worth individuals) to a private equity fund but have not yet been deployed into investments.
The report makes clear there is still plenty of dry powder available in private markets, which is not necessarily a good thing. It can also mean that good opportunities to invest are hard to find. The data does show clearly that there is plenty of private equity money waiting to be used.
At the end of 2022, global levels of dry powder in private equity stood at 1,845 billion dollars, or 22.7 per cent of capitalisation. It remained near its all-time high of 1,880 billion at the end of the third quarter.
Global private capital funds saw the lowest relative distributions since the Global Financial Crisis in 2008, with only 13 per cent of value getting distributed throughout 2022. With the exception of 2020 at 18 per cent, the distribution rate has been between 20–30 per cent every year in the past decade and was at 28 per cent in 2021.