With volatility rattling public markets, fundraising for private equity deals took a tumble during the first quarter of 2020, according to a new report by the Callan Institute, which found fund closing dropped 39 per cent since the last quarter of 2019, while commitments were down 37 per cent.
Many institutional investors suddenly find themselves over-allocated to less liquid portfolio components like private equity following the sharp decline in the value of other assets like public equity. However, the report noted, this phenomenon hasn’t had a significant dampening influence on private equity trends this past quarter.
It found three-quarters (74 per cent) global commitments went to U.S. and other North American funds, while Europe (13 per cent) and Asia (11 per cent) saw far fewer.
As well, activity in buyout investments declined during the quarter as investors’ attention was drawn to managing the health of current portfolio companies, distracting them from seeking new deals. Soaring uncertainty levels also created a difficult environment for these transactions, pushing their number down 20 per cent since the last quarter of 2019, with their dollar volume falling 44 per cent, according to the report. “Lack of visibility on the future levels and timing of revenue and earnings has created significant price uncertainty, so most sellers and buyer are not finding mutual ground.”
Venture capital activity was also lower, but not by as much as buyouts. Financing rounds dropped by 16 per cent in the first quarter of 2020, while announced dollars fell by just two per cent. Notably, information technology, consumer products and services, followed closely by health care, were the top categories by sector.