Signs point to a slowdown for Private Equity fundraising in 2023, which means finding ways to differentiate will be more important than ever.

The current state of Private Equity fundraising

After a period of robust fundraising, it appears the market for Private Equity, or PE, capital is slowing down. According to PitchBook’s Q3 2022 US PE Breakdown, fundraising is “already down from last year’s strong pace, with midsized PE funds and emerging managers seeing the biggest declines.” The report continues:

“Through the first three quarters of the year, Private Equity managers closed 143 vehicles with fund sizes between $100 million and $5 billion, raising a total of $119 billion, according to PitchBook data. That compares to $197.4 billion across 268 such vehicles during the same period last year.”

There are many reasons for this slowdown, including inflation and a denominator effect triggered by a decline in public asset valuations. It’s not anticipated that this slowdown will end anytime soon.

“There is an expectation that the denominator effect will continue to weigh on private markets, reducing the gross amount of institutional capital available for alternative assets in 2023,” said PitchBook.

Firms are already preparing for a slow 2023, with many firms likely to slow down hiring amid declining fundraising figures. Blackstone recently made headlines by delaying the launch of a new private equity fund until the fundraising landscape improves.

Some of those hardest hit will be emerging fund managers. PitchBook details “42 first-time funds that have closed $8.5 billion in capital through the first three quarters” of this year, “a pace unlikely to surpass last year’s tally of $18.4 billion.”

“With the scarcity of capital being supplied,” the report adds, “LPs may pull back commitments to new relationships and instead double down on their existing relationships.” That’s bad news for emerging managers, who are going up against entrenched firms with longstanding customer relationships. How can small and growing fund managers compete?

If there is less capital to go around, fund managers will have to work harder to attract what is available. The way to do that is by expanding their pool of potential investors and differentiating through technology.

Finding new investors by going global

One way to creatively solve fundraising issues is to broaden your scope. Many US fund managers are hesitant to look toward the EU for new sources of capital because it is perceived as too complicated. Although each jurisdiction has its own challenges, JTC can help you choose the right jurisdiction and structure to market your fund, and employ our localized expertise to navigate regulatory complexity so you can take advantage of opportunities around the globe and diversify your investor base.

For example, while it’s true that Private Equity fundraising is down in the US, one location where the Private Equity market hasn’t slowed down is Ireland, which saw “the most growth in PE deal activity among European countries over the last five years, with an average annual increase of over 30%. The country saw 147 deals completed in 2021, nearly three times 2016’s total of 57.”

Ireland has become an increasingly attractive destination due to its tax treaties with the US and EU and relationships with both the American and European financial communities, as well as its strong regulatory framework. US managers looking to fundraise overseas can take advantage of JTC’s established presence in Ireland that includes our AIFM, depositary, and fund administration solutions in the country. And Ireland is just one of more than two dozen jurisdictions in which JTC has a presence.

JTC works with US-based investment managers to help them expand overseas, combining our personal touch with a global reach. Our international presence was one reason why JTC was named “Fund Administration Challenger of the Year” by the Global Custodian Industry Leaders Awards. If you want to access a larger pool of capital, we can help.

That’s not the only way JTC can help fund managers differentiate: thanks to our industry-leading technology, we can help you provide your limited partners with greater peace of mind by enhancing security and transparency for your offerings.

How to differentiate in a competitive fundraising environment through technology

A recent opinion piece for Financial Times titled, “There is no alternative to alternative assets” points out that private markets are necessary for diversifying portfolios, but that as public markets suffer, investors may want to pull out of private markets because of liquidity issues. This means that the best funds will be the ones left standing:

“As the industry sees a flight to quality, investors are likely to reduce the funds they back, remaining with trusted partners,” the essay reads.

If investors are backing fewer funds, they’re going to stick with the fund managers they trust the most. So how do you build trust, especially with LPs who have only been with you a short time?

The way to build trust is through transparency. With fewer deals being made, due diligence is becoming more important than ever in the private equity sector. Your limited partners are going to want to scrutinize each acquisition, and you need to be prepared to provide peace of mind about your processes.

perfORM Due Diligence Services, a JTC Group company, is considered a leading provider of Operational Due Diligence (ODD) solutions. perfORM provides unique, cost effective support that fuses ODD with smart digital tools across all sectors of the financial industry, including private equity, venture capital, real estate, infrastructure, hedge funds, digital assets including crypto, and traditional asset classes (equity and fixed income).

By combining our third-party fund administration solution with ODD from perfORM, you’ll be able to instill confidence in your investors through the strength of your operational processes.

JTC’s PE fund administration solution includes an online investor portal that provides access to key documents and portfolio information 24/7, anywhere in the world, on any device. JTC is also able to provide investors with impact and ESG metrics that could make the difference in fundraising, and our purpose-built technology can improve the investor experience in everything from onboarding through the entire investment lifecycle while making your efforts more efficient and cost-effective.

If you want to build trust with your limited partners, consider working with a third-party fund administrator that they trust. With our purpose-built technology solutions and global reach, JTC can be the differentiator you’re looking for.

Stronger Together

Learn more about our Fund Administration services by downloading our Private Equity Fund Administration solution sheet!