Haul of large funds closings in Q1 2023 clouds new managers outlook – conference

Allocations could be dragged further away from new managers as established GPs with delayed fundraising process suck up the new money expected to made available by institutional investors in the new year.

According to one placement agent that spoke to Unquote, many of the big-ticket private equity funds that have been on the road through 2022 are due to hold final closes as the new LP allocations become available in the new year.

Bridgepoint, which is on track for a H1 2023 close of its EUR 7bn Bridgepoint Europe Fund VII, is expected to be joined by the likes of EQT, CVC, Cinven and Astorg in the closing of their flagship strategies in the new year, according to the placement agent.

Many LPs during SuperInvestor last week said that they are focused on high-quality, well-established managers in the ongoing capital crunch, further compounding ongoing liquidity problems for emerging and mid-market sponsors. 

Funds of all sizes are, however, unlikely to see huge size increases as LPs flinch even from existing relationships.

"We're writing smaller average commitment sizes," one US pension fund told Unquote, echoing the comments of many LPs. "Flat is the new up, we're moving slow and committing less, transitioning to be a bit more down market."

Good vintages

In parallel, a plethora of cheap assets expected to come to market could feed good vintages in the coming years, participants at the conference said.

The growing gap between buyer and seller expectations – the biggest one large GP executive said he has seen in his career – alongside low public market valuations and distressed situations mean that GPs are expecting to feed good vintages in the coming years.

"2023 could be a very interesting year to deploy capital," said the same GP executive. "There will have to be a reset and we expect to be back full-on by the middle of next year."

Another UK-based GP said there is an "interesting source of deal flow" in companies that cannot refinance and end up in the hands of creditors and under-invested, as well as orphan divisions in listed conglomerates that are trading at a discount.

A less competitive M&A auction market will feed into less punchy valuations that will ultimately feed into better returns, said another large-cap GP executive. "The auction dynamic of paying more has tempered. There is the same number of competitors, but there won't be this one guy who needs to buy so goes in 50% above the other offers."

In the midst of the cash crunch, LPs are exploring different ways to capitalise on the opportunities. Although being about 300-400 bps overallocated to private equity due to the denominator effect, the US pension fund executive is also growing its co-investments strategy as a means to get access to access to the coming vintages.

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• Topics
• GPs
• LPs
• Funds
• Deals
• Fund financing
• Bridgepoint
• Cinven
• CVC Capital Partners
• Astorg Partners
• EQT