New Survey Reveals Optimistic Outlook For Private Equity Despite Rising Competition

Alphaweek | February 17, 2022

Research and analytics provider Acuity Knowledge Partners today released findings from its global Private Equity and Venture Capital survey.

Survey respondents representing over 80 firms spanning North America, Europe and Asia, reported on their outlooks, concerns and business plans for 2022; firms overwhelmingly agreed that competition for funds has increased in recent months, but that fundraising conditions should improve in 2022. Respondents indicated that,

amid the positive fundraising environment, funds available to deploy are likely to increase, with more than half of respondents expecting levels of dry powder to remain high for some time.

“To cope with increasing competition PE and VC firms have had to adapt their business models,” said Robert King, CEO of Acuity. “Firms are augmenting their teams with outside support and are increasing their reliance on Knowledge Process Outsourcing services. 79% of respondents indicated that they currently outsource work, with more firms indicating that they plan to do so. The PE and VC sector tends to see outsourcing as a valuable complement to their existing operations and so companies like Acuity are well-positioned to provide strong support both in 2022 and long into the future.”

Key findings from the survey include the PE and VC sectors remaining strongly optimistic about fundraising. Despite many respondents (74%) experiencing increasing competition for funds recently, almost the same number (72%) still believe the quality of fundraising opportunities should improve in 2022; 21% expect it to remain the same. Regionally, UK- and Europe-based firms are more optimistic about fundraising. Over 80% of respondents from these regions expect an increase in fundraising, while only about 70% of respondents from the US and Asia expect growth.

In general, the PE and VC sector expects valuation levels to remain elevated. About 90% of respondents expect valuation levels to increase or stay at current levels. While respondents did not indicate that high valuations impacted exit decisions, 58% rate high valuations as a major concern. In an environment of soaring valuations, finding targets with the right valuation is difficult; almost all respondents agree with this. The level of difficulty seems moderate to difficult, with 81% of the respondents rating it between 5 and 8 or more on a scale of 1 to 10.

PE and VC firms are augmenting their teams with outside support. Nearly half of the firms currently not using this business model are likely to outsource or are open to outsourcing. Notably, 90% of associates and 89% of vice presidents surveyed are open to outsourcing, which is greater than the level of support seen in senior management. This is atypical in comparison to other sectors where the decision to outsource is generally made by senior management. Overall, the acceptance of outsourcing is high across designations.

Sumit Chhabra, Managing Director, Global Head of Private Equity and Venture Capital at Acuity Knowledge Partners, said, “The survey results confirm that PE and VC firms are seeing increased growth in reach and size as we emerge from the global pandemic. As the PE and VC sector is expected to expand, target companies seeking funding, as well as investors with investible cash, are getting more attracted to the sector.”

“Competition will continue to drive diversification, with large firms leading the charge,” he continued. “We expect to see growing demand for ESG and continued focus on technology, media & telecom (TMT) and healthcare sectors. Overall, our teams at Acuity echo the positive outlook and optimism survey respondents hold for 2022.”

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