Mckinsey – Global Private Markets Review 2023 – Summary

Deep Dives:

1. Fundraising Losing Momentum

  • Private debt fundraising continued to grow last year (+2%), once again bucking the trend of other private asset classes. Institutional investors sought out the asset class for various features that are attractive in times of market volatility: current yield, floating rates, and relative insulation (via its senior position in the capital stack) from declining valuations
  • Amid a pullback in commitments, an outsized share of capital flowed to the largest funds, as investors re-upped with their existing managers but reduced backing smaller and new funds”. In a turbulent market, investors shifted new commitments to larger funds. Funds greater than $5 billion raised a record $445 billion, 51% more than in 2021. Conversely, funds smaller than $1 billion raised just $349 billion, a decrease of 31%.
  • Very clear that people want to back larger performing funds than the newer one.
  • Top 25% managers contributed to 42% of the fundraise (long term average of 35%). Fundraise by first time managers dropped to 32% from 43%
  • North America was resilient (+2%), Asia and Europe was down 39% and 29% respectively. In Asia, China concentration reduced from 83% (2017) to 34% (2022)
  • Infrastructure and natural resources fundraising rose to an all-time high of $158 billion, benefiting from the closing of a record five funds of more than $10 billion.
  • Participation of Non-Institutional HNI investors increased; non-institutional investors is an $45 trillion global capital pool. At present, retail investor allocations to private markets range from 5–6%.2 As more institutional investors achieve asset-allocation maturity and slow the growth of their new commitments to private markets, non-institutional capital will be the next growth frontier for GPs. Globally regulations are supporting movement to retail:
    • US Department of Labour issued a statement allowing select 401(k) plans to incorporate PE as a component of their investment plans.
    • In February 2023, the European Parliament voted to approve revisions to the European Long Term Investment Funds that will relax rules restricting individual investment in private asset classes, including minimum investment and diversification requirements.

2. Deal Movement

  • Volume in the first six months of 2022 fell just 5% from the same period in 2021, while second-half deal volume fell 45%. 4Q of 2020 was the slowest since 2017.
  • Global buyout activity fell 25% to less than $1.7 trillion, and growth activity fell 18% to $254 billion. VC deal volume declined even further, falling 33% to $498 billion
  • IPO volumes dropped 70% in 2022 year over year, and corporate M&A activity fell 37%.
  • Buyout multiple increased from 2009 to 2022 from 8.8 EV/EBITDA to 13.2; First time it has reduced to 12.9x. Leverage levels are flat at 6.9x. Largest declines seen in technology (17.3x to 15x) and financial services (14.0x to 11.5x)
  • LP Secondary unit values price fell by 11% on average in the market – Buyout fell by 10% points to 87%, VC Portfolio fell 20 % points to 68%.
  • High prevalence of non-platform deals in buyout – 49% in 2009, 68% in 2021, 72% in 2022.

3. Fund Returns and Performance:

  • Buyout had the strongest performance, returning −6.0% on a pooled basis for the three quarters ending September 30. VC underperformed buyout for the first time since 2017
  • PE is still the best performing asset where 2009 to 2019 Net Median IRR is 20.1%, which is 200 bps higher than any other assets top quartile returns.

4. Year of Real-estate and ESG

  • US Open Ended Realestate Fund NAV increased by 24%, with contribution > distributions.
  • But Close-ended fund raising declined 23% YoY, Deal Volume fell by 20%
  • In terms of Close ended fundraise – Asian realestate funds were flat, NA degrew 22% and Europe degrew 39%; In RE 5 largest managers raised ~30% of all the funds.
  • The growth in E-commerce sale in US is flattening – Interesting chart in annexure.


  • The proportion of total private capital fundraising that came from managers with an investment policy that includes ESG issues rose to 66 percent in 2022,23 a new high
  • Publicly traded ESG funds perform 200 bps higher than peers.
  • Survey indicates 3 out of 4 LPs tend to eliminate managers without ESG policy.
  • 1st time ESG AUM exceeded $100 bn, this has grown 35% CAGR for last 10 years. Of the 13 total impact funds of over $2 billion in size, nine have closed in the last two years
  • 40% of ESG Funds in VC Space.

5. Private debt weathers the storm; Fundraise at all time high.

  • Global private debt fundraising rose to a new high of $224 billion, growing 2.1 percent year over year and marking a fifth consecutive annual increase; North America–focused fundraising grew 11 percent, while fundraising in Europe and Asia declined 10 and 25 percent, respectively, in US dollar terms. Fundraising for mezzanine lending increased 2.4 times to $46 billion last year, reaching its highest total ever.
  • Private debt AUM totaled $1.3 trillion as of June 30, 2022, up 12 percent from a year prior. North America remained the largest region, accounting for 62 percent of the total, roughly 2.3 times larger than Europe. Direct lending funds represented 44 percent of the private debt market, up from 32 percent in 2017, driving 55 percent of all AUM growth over the last five year.
  • High concentration in private credit – 45% of funding to 25 largest funds (compared to 25% in PE)
  • Average private debt fund size increased to 1.6 billion (US and Europe), scale imperative for profitability

Interesting Charts:

But manager selection mattered less in 2022 than in years past. The interquartile spread of returns of PE funds—the gap between the bottom and top quartile—narrowed to 21.6% from the prior ten years’ annual average of 33.8%, largely driven by the drop in top-quartile returns. As the industry narrative turned from beta to alpha, there was less alpha to be had in 2022.

Share this Article