Though few LPs thus far have abandoned commitment plans entirely or sold portfolios as they did 15 years ago, many have pulled back, particularly from smaller and newer funds, causing fundraising to decline. The discrepancy this year drove private market allocations higher on a percentage basis across institutional portfolios-closer to preexisting targets for most, and above targets for many limited partners (LPs)-triggering the so-called denominator effect. Still, private markets outperformed public markets on the way down, whether due to truly more resilient portfolios, a lag in timing, or manager discretion over their marks (private markets tend to mark up less quickly during ascending markets and mark down less quickly in falling markets). Private markets deal volume plummeted, performance declined, and valuations fell-dramatically in certain sectors. Banks began to pull back, unwilling or unable to lend. This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Pontus Averstad, Alejandro Beltrán, Marcel Brinkman, Paul Maia, Gary Pinshaw, David Quigley, Aditya Sanghvi, John Spivey, and Brian Vickery, representing views from McKinsey’s Private Equity & Principal Investors Practice. In the private markets, first-half deal activity softened but subtly so, nearly matching the record-setting pace set in 2021. In the first half of 2022, central banks fought roaring inflation by sharply raising interest rates, and public market valuations cratered. Markets climbed higher still, awash with central-bank-induced liquidity. In almost every regard, 2021 was an exceptional year (as we highlighted in last year’s report) but it was not a trend breaker.
Even in 2020, when activity stalled briefly during the early months of the COVID-19 pandemic, private markets hummed again in the second half. Each year since its inception, this annual publication has discussed new records in fundraising and deal flow while celebrating strong performance across asset classes. Interest rates stayed low, credit availability was high, and valuations rose consistently. Private markets have enjoyed strong tailwinds since the depths of the Global Financial Crisis (GFC). Special Report McKinsey Global Private Markets Review 2023: Private markets turn down the volume (74 pages) The music didn’t stop, but someone turned it way down
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