A recent Pitchbook article provides some insight into public pension manager’s private equity allocation in the current market. The past twelve years have seen rising institutional asset allocations to private equity as declining public market return assumptions, combined with fixed return mandates affected increased allocations to alternative assets. However, PE investors see current macroeconomic environment and inflation as heightening the risk for the asset class for the two to three years. Such risks, along with valuations are causing some, but not all institutional investors to consider reducing their PE allocations. That may be the wrong approach, as the best years for PE have historically often been in the few years following recessionary periods, as valuations are typically more favorable. Will it be different this time? Some argue that valuations are higher and the overall allocation to the space is higher than previous periods. The trend has been that more companies are remaining private for longer periods of time and with the current IPO market so narrow, investors seeking higher returns may need to continue to lean into the space. To see the full article, see Will public pensions stick to their PE targets in 2023? Pitchbook.com 12/13/2022.
The private equity asset class has seen a surge of new money as of late. Private equity funds raised a record $940 billion in 2021. Private equity managers now manage $10 trillion in assets, a sum that has quadrupled over the past 15 years. In the first quarter of 2022 US private equity funds invested roughly $222 billion across 1,418 deals. Of this $222 billion invested, the technology sector was the largest recipient with about $66 billion in funding (∼30%).