Private markets managers expect sharp fall in fundraising and distributions this year

While the overall outlook for 2020 is negative, there are sharp variations depending on manager strategy.

Private markets fund managers expect fundraising to fall by almost 20 percent in 2020 as a result of the coronavirus crisis, according to research by Setter Capital.

Setter surveyed 72 managers of private markets funds to get their views on the likely effects of the crisis and found they expect fundraising to be down by around 18.5 percent in 2020 compared to 2019. However, views vary by asset class, with debt managers actually expecting a 5 percent increase in fundraising activity while venture managers were the most pessimistic, expecting capital raised to fall by 29.1 percent.

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Fund distributions are also expected to take a severe hit with an average fall of 34.3 percent predicted. Again, debt-strategy managers were the most optimistic, expecting distributions to fall only 22.5 percent, while venture managers were the most bearish, predicting their distributions will fall 43.5 percent.

Capital calls are not expected to change significantly, falling 0.7 percent on average. However, debt managers expect a sharp increase in capital calls of 20 percent. However, around 65 percent of those capital calls will be used for new investments, with only 35 percent used to support existing portfolio companies. This could be linked to expectations that economic dislocation will present opportunities for distressed debt managers.

Private markets managers also believe this economic crisis will persist for some time and is likely to get worse before improving. Respondents expect Q1 NAVs to fall 9.5 percent and this will worsen in Q2, falling 12.6 percent on average.

The economic recession is expected to last an average of 13.1 months and 69 percent of those surveyed say public markets will retest lows within the next six months, and will be down 12.6 percent by the end of 2020.

Fund managers also expect there will be increased need to tap secondary markets for liquidity or exits in the next nine months, with 56 percent saying they are more likely to access the secondary market, while only 26 percent would be less likely to use it.