LPs’ Interest in PE & VC Down, Hedge Funds Up

By David G. Barry

Private equity and venture capital in, hedge funds out?

Not quite, but a survey of 300 limited partners done in June shows that they are far less excited about PE & VC than they were in 2021 and are surprisingly more open to hedge funds – an asset class that many institutional investors have pulled away from.

According to the survey done by industry tracker Preqin, only 30% of private equity and 26% of venture capital investors plan to increase the pace of capital deployment in the next 12 months. In contrast, in June 2021, both private equity and venture capital investors said they planned to increase their commitments by 43%.

Perhaps even more noteworthy about this year’s survey is that 24% of private equity investors and 13% of venture investors said they plan lower commitments of capital to those sectors. The remainder said they are looking to maintain their current investing pace.

The fact that many of the LPs surveyed are not looking to ramp their private equity and venture capital activity dovetails with their view of results from those asset classes. According to Preqin, 50% of PE investors and 55% of VC investors responding to the survey expect worse performance over the next 12 months. Additionally, 80% of those surveyed viewed venture capital as the most overvalued.

Some of the survey’s respondents also said that their allocations to hedge funds is likely to increase. Preqin said macro, CTAs and relative value hedge funds are likely to attract more capital.

The survey respondents also are less excited about emerging markets – perhaps in part because of the strong dollar. According to the results, investors planning developed-market allocations only was 52.8% for private debt, 40.8% for venture capital and 34.8% for private equity – marks that are 15.2%, 16.3% and 6.6% above their June 2021 figures.

It also is worth noting that 55% of survey respondents believe we may be approaching the bottom of the current equity market.