The private equity industry is preoccupied by a key question in 2019: which sectors will be worst affected by the expected equity market downturn? Fund managers and investors alike widely believe it is due within the next 12-24 months, so are positioning themselves accordingly – and their preparations are driving industry trends in Q1.
For investors, the overall appeal of private equity has not diminished. Historically, the asset class has consistently outperformed public markets, even through previous financial crises. Beyond return generation, private equity investments offer diversification and inflation-hedging advantages which are particularly appealing to investors looking to protect their portfolios. However, in a period of uncertainty, investors are exercising caution, so capital is increasingly concentrating at the top end of the industry. This poses an ever more challenging landscape for smaller managers trying to secure funding.
On the deal-making side, it is a different story: both buyout and venture capital saw record levels of deal-making in 2018, and much of that momentum has carried over to the first part of this year. Dry powder has continued to accumulate, and yet fund managers are clearly able to put capital to work, despite concerns about high asset pricing and competition for deals. The pressure that competition puts on future returns is undeniable and, though it may be that the days of double-digit performance for the industry are over, many fund managers and investors still see private equity as a strong performer in the months and years to come.
Download your copy of the Preqin Quarterly Update: Private Equity & Venture Capital, Q1 2019 for further in-depth analysis on fundraising, deals and performance data from the quarter.
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