Smaller PE Managers Face Tough Environment

Smaller private equity (PE) managers faced a tough fundraising environment last year as investors gravitated to larger, well-known firms perceived to be safe bets amid market volatility, says a private markets report from McKinsey. It shows the total amount raised by private equity funds larger than $5 billion reached an all-time high of $445 billion in 2022, up 51 per cent from the total amount raised by funds of similar size in 2021. However, funds with less than $5 billion in assets raised 28 per cent less capital than they did the year before. The fundraising environment was even more difficult for the smallest group of funds, those with less than $250 million in assets. Only 1,500 of these funds reached their fundraising targets in 2022, down 51 per cent from the year before. That’s the lowest level since 2015. First-time managers also had a challenging year, raising a total of $32.1 billion in 2022, down from $42.8 billion in 2021 and the all-time high of $93.2 billion in 2017. These managers made up only five per cent of total fundraising last year, the lowest percentage in the last 20 years, says the report.