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Clients will have more authority in 2023, according to private equity executives

When pension funds are stated to be reducing their asset allocation to private markets, sovereign wealth funds (SWFs) are predicted to grow in importance as important sources of investment into private equity in the future year.

SWF influence is also growing as limited partners (LPs) in private equity funds are likely to gain more power in an environment where fundraising is challenging.

According to a survey of 188 general partners (GPs) - professionals at private equity companies – those who named SWFs as a more important source of capital grew to 27% this year from 19% the previous year. However, the sector's primary source of funding - family offices and affluent people - ranked first, with 45%. According to IPEM, the events business that sponsored the poll, the private capital market will be LP-led in 2023, despite what 72% of respondents forecast to be a highly challenging exit scenario for private equity this year. More over three-quarters of GP respondents felt LPs would have more power.

Meanwhile, ESG will continue to be the top internal priority for businesses in 2023, as it was last year. Climate tops the ESG list, and 69% of GPs felt private equity could deliver "real responses to climate".

Fund reporting and transparency were also key considerations.

Despite a more pessimistic view of the sector's backdrop, just as many funds (two-thirds) expect to raise money this year, and possibilities are projected to arise from a higher need for restructuring in portfolio companies. This conclusion was related by IPEM to an overall positive attitude toward deal-making and capital deployment.

Antoine Colson, CEO of IPEM, stated that the report's overall findings demonstrated "positivity and optimism" among GPs in the field.

“If I have a concern, it is whether this drive and enthusiasm will be shared by LPs.”

Pension funds and insurance corporations were perceived to be allocating less to private equity and "struggling with less distribution and unfavourable J-curve effects," according to Colson.

Johanna Kyrklund, co-head of investment and group chief investment officer at Schroders, stated at a conference last year that defined benefit (DB) pension plans would likely find it difficult to take as much risk on growth assets when central banks are dealing with inflation and financial stability at the same time. According to her, deleveraging could result in reduced levels of DB plan investments in illiquid assets.

According to a recent RBC BlueBay study, fund managers are optimistic about public-market investments and do not anticipate to boost allocations to private markets. However, other research published in September of last year predicted that fund managers will seek assistance from private market investments to prevent inflation.


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