Q1 23 shows private equity’s promising recovery, but challenges and fundraising slowdown persist, according to a State Street report.
State Street’s ‘State Street Private Equity Index Trends – July 2023’ found encouraging signs of recovery during the period, with a 2.1% return in Q1 23, up from 1.2% in Q4 22.
Venture Capital (VC) also saw a positive shift, breaking its losing trend since Q1 22 and achieving a breakeven return of 0.0% in Q1 23. Meanwhile, buyout and private debt funds saw improvements, achieving returns of 2.7% and 2.3%, respectively.
However, the Q1 23 returns, while indicating progress compared to the losses of the previous year, still fall below the long-term mean of 3-4% quarterly returns. Nevertheless, SSPEI outperformed the SP500 across various time horizons ranging from 1 to 10 years, although it experienced a lag in Q1 23 due to lethargic valuation updates in the short term.
The best-performing sectors at the one-year horizon were energy and industrial sector funds, with energy showing signs of weakening in Q1 23 with a 0.1% return, while Industrials remained robust at 2.5%, closely followed by information technology funds with a 1.9% quarterly return.
Fundraising activity slowed down in Q1 23, with a projected capital raise of $240 billion for the full year, representing only 56% of the total funds raised in 2022 or 40% of the funds raised in 2021. However, the average fund size rose to $2.3 billion in the first quarter.
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