Preview: The Q1 2022 report on Global Fund Performance shows that private fund performance remains historically high with a 10-year average return of 14.5%. However, the macro environment has shifted and private capital is indicating a -1.1% return. The report suggests that private markets have remained muted in their volatility, despite the dramatic drop in the S&P 500. Several strategies like real estate and infrastructure funds have continued to increase in value, but VC, PE, and private debt have all come off their peaks. The report also highlights the high dispersion in returns within strategies, with top decile funds providing much better returns than bottom decile funds. The effect of the inflationary environment and counter-inflationary policies is expected to weigh more heavily on returns in the upcoming quarters.
- In the first quarter of 2022, private fund performance was still historically high, with the 10-year average returning 14.5%. However, the macro environment has shifted, and private capital is indicating a -1.1% return.
- Private markets have remained muted in their volatility, despite the dramatic drop in the S&P 500. Several strategies have continued to increase in value, although VC, PE, and private debt have all come off their peaks.
- Private funds have not shown extreme volatility overall, but within strategies the median returns mask a fairly high amount of dispersion. For example, top decile VC funds provided a 39.9% return or better, while bottom decile VC funds provided a -6.7% return or worse.
- A year ago, PE was celebrating its highest ever one-year return of 55.9%, but today, PE continues its inevitable slide toward a drawdown. While not as severe as Q1 2020's 8.2% decline stemming from the global COVID-19 pandemic lockdown, PE is unlikely to see a "one-and-done" episode.
- Blackstone reported a slight decline in PE portfolio value in Q3, following a 6.7% decline in Q2. This follows five consecutive quarters of industry-wide write-downs to the tune of 29.3% during the global financial crisis.
Kyle Stanford, CAIA
- Global VC fund performance statistics have quickly fallen back to earth, with a one-year rolling IRR of 24.3% through Q1. Ongoing turmoil in the public markets will continue to add drag to near-term performance.
- VC funds' quarterly returns turned negative in Q1 2022, and preliminary data for Q2 shows a second consecutive quarter of negative return, again due to the lack of IPOs globally. The growing group of unicorns adds pressure to the venture market and the returns that the industry has generated in recent years.
- In Q1 2022, real estate funds achieved a post-GFC high with respect to rolling one-year horizon IRR, driven by North American returns, which struck a 30.7% one-year IRR, while European and rest-of-world numbers came in at 21.2% and 14.7%, respectively.
- The effects of the inflationary environment and counter-inflationary policies will weigh more heavily on returns in upcoming quarters, but multifamily may benefit from the still-considerable gap between workforce housing demand and supply, despite markdowns occurring on single-family homes.
- The recent trend of small but steady increases in real assets rolling one-year IRRs persisted through the end of Q1 2022, with infrastructure fund returns also notching a post-GFC zenith of 17.3% in the first quarter of the year.
- The one-year horizon IRR for oil & gas funds remained aloft at 42.2% in Q1 2022, although a touch lower than the previous quarter's 45.9%. Metals, timber, and agriculture funds saw an increase in one-year performance, although these numbers are dominated by the returns of other real assets fund types.
- In Q1 2022, private debt performance came in at 2.3%, slightly down from Q4 2021. The preliminary data for Q2 2022 shows returns of -1.8%, coinciding with the Fed shifting into high gear with rate hikes and its pivot to a very hawkish tone.
- The cost of debt continues to rise, and banks are taking a step back, allowing direct lending funds to step in and take market share. Direct lending funds will be able to collect higher rates of interest on what they do lend.
- Against the backdrop of the Russia-Ukraine war, FoF rolling one-year returns dipped from 54.5% in Q2 2021 to 30.5% in Q1 2022. However, FoF still outperformed the private capital funds universe, trailing only secondaries.
- FoF quarterly returns sank into negative territory in Q1 2022 at -0.7%, but are expected to rebound in Q2 2022 with a preliminary figure pointing toward 4.8%. PE FoF performed the worst out of all FoF strategies in Q1 2022, generating -2.1% returns.
- Secondaries were the best performing strategy in the private capital funds universe through Q1 2022, outperforming the overall private capital fund universe by a remarkable 15.1%. The resilience of secondaries thus far appears to come down to one important factor: current macroeconomic conditions.
- The cash flow of secondaries strategies tipped into positive territory through March 31, 2022, reversing a negative trend that began in 2018.
Full report: https://files.pitchbook.com/website/files/pdf/2022_Global_Fund_Performance_Report_as_of_Q1_2022_with_Preliminary_Q2_2022_Data.pdf