Venture Capital funds reverse as private firms are hit by headwinds

VC and private equity funds have begun losing investors cash as start-ups and private equity funds are hit by a downturn

Private equity and venture capital funds have reversed and begun losing investors cash in the past quarter as the market is buffeted by a cocktail of interest rate hikes and a looming recession, according to a new report.

Private capital delivered a 1.1 per cent loss to investors in the second quarter of 2022 globally as the “macro environment shifted”, a new report from investment analysis firm Pitchbook found.

PE and VC strategies led the fall globally as they shed on average 3.2 per cent and 2.3 per cent, respectively, analysts at the firm found.

It comes as the volatility that has rocked public markets spills over into private firms and sends valuations tumbling this year. Pitchbook said that the bumper gains made in the preceding year had now begun to reverse.

“Preliminary figures for [the second quarter] do show a recognition that the macro environment has shifted, as private capital is indicating a -1.1 per cent return,” said Hilary Wiek, lead analyst, fund strategies & sustainable investing at Pitchbook.

“In the preliminary figures, PE and VC trailed the other private fund strategies in Q2 2022, with the highest fliers of 2021 having further to fall back to recognize the new normal.”

However, Wiek said that private market volatility had dodged the scale of turbulence that has sent public markets into a spin.

“While arguments can and will be made that the muted volatility in private funds versus public markets may not fully reflect reality, private funds valuations are not indicating much concern about the macro environment in comparison to the S&P 500,” she added.

Venture capital in the UK has been creaking under economic pressures in recent months as an investment frenzy cools off.

Data from Big Four firm KPMG showed that VC investment into the UK fell dramatically during the summer as a cautious approach took hold, with just $4.6bn of VC cash invested into UK businesses during Q3.

Private equity investors similarly took their foot off the accelerator over the summer as dealmaking slowed. 

Eighty UK deals were completed in the three months through September, a fall of 34 per cent on the 121 acquisitions completed in the previous three months and a 42 per cent slump on the 137 acquisitions closed in the third quarter of 2021, according to research from ADDX, a digital exchange for private markets.

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