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The virtuous circle that has been driving private equity returns higher over the last several years is at risk of unwinding. Higher financing costs and the underperformance of technology in the new macro-economic environment may make it more challenging for private equity to continue its outperformance of public equity markets.Having said that, shorter-term performance will appear more insulated from the market turmoil.

With the exit environment expected to continue to weaken, fund lives are expected to extend going forward as distributions continue to slow. Continuation vehicles will continue to prove attractive to GPs given the flexibility they provide. Preqin analysts anticipate an increase in appetite for private equity secondaries investment as some LPs look to manage allocations, and increase the supply of fund interests available in the market, potentially at discounts to net asset values.

Key private equity Q2 2022 facts:

• Deal value was $131.2bn in Q2 2022, a 44% year-on-year decline.
• Fundraising was $119bn and a decline of 50.5% in Q2 2022, compared to the same period last year.
• Exit value was $150.7bn in Q2 2022, representing a 51.7% decline year-on-year.
• Global private equity dry powder was at $1.23tn at the end of 2021.

Cameron Joyce, Deputy Vice President, Research Insights at Preqin says: "Private equity returns are likely to remain insulated from the turmoil in public markets in the short term, at least optically. But the new macro-economic environment of sustained high inflation and higher interest rates threatens to undermine some of the comparative advantages that private equity has had over public equity markets. Nevertheless, activity has held up comparatively well so far in 2022 despite declines from a very high base of activity in 2021."

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