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| | Dry powder stocks at record highs amid challenging environment Private equity firms will be glad to see the back of 2023 after a tough year for fundraising amid an unfavourable economic environment peppered with interest rate rises that do nothing for a sector so reliant on leverage.
Venture capitalists in particular have suffered as central banks do battle with rising inflation by pushing interest rates to their highest levels since the global financial crisis.
The Preqin Venture Capital Quarterly Update for Q3 2023, authored by Michael Patterson CFA, reveals the lowest levels of fundraising since 2015, which is described as a "sore point" for the sector, and with no sign of a change in fiscal policy on the horizon, this is only set to last.
A similar story comes from Invest Europe’s survey of private equity investors with EUR846 billion in assets, which found fund raising has "slowed considerably since last year and expectations for the next 12-month period are weak".
The report finds that investments have declined in both number and value, and PE investors are less positive about the future investment climate, and notes that high interest rates and inflation are hampering the development of existing portfolio companies managed by private equity operations.
But all is not entirely lost for the sector. The result of low levels of fundraising mean that investors have plenty of cash reserves to put to work when the time is right. The Invest Europe survey reveals dry powder levels are at "record highs" which equates to EUR350 billion or 35 per cent of capital raised.
This leads the firm to conclude that the market is at a "turning point for the better, with the current weak situation likely to be just a blip in the long-term positive development of the PE industry"; a view many investors will be hoping comes to pass.
Elsewhere we hear that much needed harmonisation is happening in the world of responsible investment, and while this might not extend to global regulations just yet, some of the biggest names in the sector have, at least, agreed on definitions of key terms.
The CFA Institute, the Global Sustainable Investment Alliance (GSIA), and Principles for Responsible Investment (PRI) have issued a new resource that "aims to bring greater understanding and consistency to terminology used in responsible investment", including screening; ESG integration; thematic investing; stewardship; and impact investing.
This is to be welcomed since for too long inconsistency in terminology has added to the overall confusion in responsible investment and undoubtedly helped contribute to greenwashing.
As David Atkin, CEO at PRI, says: "Investors need language that enables them to communicate their responsible investment practices accurately, succinctly, and consistently".
Whether this joint initiative helps pave the way for more joined up international policymaking remains to be seen.
Gill Wadsworth, Editor
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| | | | | | | | | | Venture capitalists face all the challenges | | It is tough out there for venture capitalists as persistently high interest rates dog a sector reliant on long-term leverage, and this difficult environment looks set to last. |
| | | | | | | | | | | Prophetic or precarious? Demography as economic destiny Siddharth Saravat, Vice President, Economist, Payden & Rygel, writes that media stories are replete with demographic doomsaying. A shortage of workers. A lack of immigration. In some regions, there are too many people. In others, too few children. Aging and the burden of public sector costs. It goes on and on. |
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