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Most subsets of the private markets – private equity, venture capital, real estate – have endured challenges raising money this year, as improved risk-adjusted returns in the liquid credit markets have impacted private asset allocations. Even private debt, the darling of alternatives this year, has seen a pullback in the third quarter.
Added to that, the new private fund rules announced by the SEC in the summer makes it more onerous to manage a private fund. It is not an understatement to say that 2023 has been a tough year for the industry in the United States.
But the people in our market are nothing if not optimistic. At our Alternative Investments Cocktails and Bites event in Miami in early December – co-sponsored by our friends at Akram Assurance, Advisory & Tax Firm, Bank United, Divergent Capital Asset Management, Riveles Law Group and Voya Investment Management –, many folks seemed in good spirits. Whether that’s because it’s the holiday season, or whether they are glad to see the back of 2023 (probably a bit of both) isn’t the point; the point is that, despite the numerous challenges facing the alternative investment industry, the general perception doesn’t seem to be like it was during and in the immediate aftermath of the Global Financial Crisis.
Back then, I remember that the general tone bordered on depressing – many were unsure of exactly how the finance industry generally would recover. But the fundraising challenges I refer to above are arguably more cyclical as opposed to fundamental, with room for encouragement; the US federal funds rate has held steady since the end of July, the longest period of non-increases since rates started rising in March 2022. If we’ve seen the top of the current rates cycle, which could be likely given that inflation in the US is now down to around 3% – that’s good news for pretty much everyone in our space.
Of course, there will be challenges in 2024. The commercial real estate market continues to see tough headlines in the media, for example, and, given the duration of the loans in the space, it’s likely that the beginning of next year could still be tough for the space. And the hedge fund folks are the unfortunate ones in line for redemptions if liquid credit still continues to deliver a solid yield, due to the open-ended nature of most of their funds, as opposed to their closed-ended private markets cousins.
But at our event, a good few of the folks I spoke with were bullish about next year, particularly in the private markets space. Some think that investors that hit pause on allocating this year should return next year, increasing fundraising generally across the main segments of the industry. And some of our fellow service providers said that they expect new launches to increase next year when compared to 2023, in part because of increased certainty about the macroeconomic outlook and the subsequent opportunities for GPs to do deals, whether that be debt or equity. And, while times may be tough for real estate in the near future, the flip side is that there will likely be opportunities in the distressed space, which may lead to new launches in that corner of the market, looking to take advantage of any dislocation. That’s something that many felt would happen this year, and hasn’t – at least, to the extent that it might have.
Here’s hoping the bulls are right!