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Matt Malone explains how investor selectivity has extended fundraising cycles amid rising interest rates
Key Takeaways
- Fundraising is slowing and investors are becoming more selective - looking for strategies that are less sensitive to interest rate fluctuations.
- For patient and strategic investors, this slower and methodical environment may offer more reasonable valuations than we have seen in the recent past, and potentially better returns over time.
Transcript
So we get a lot of questions about capital market dynamics and fundraising, both at the fund level and at the company level. What we've seen over the past year and recently is just a continuation of investors being more selective. The overall fundraising market has slowed down, particularly since the pre-interest rate hike cycle dynamics of very, very quick fundraises for fund managers.
We're seeing fundraisers take longer generally. We're seeing more time for deeper due diligence, both at the fund level and at the company level. Investors are being much more selective about where they deploy capital. They're looking for strategies that are not as interest rate-sensitive. Even though we're seeing slowing in inflation, which caused equity markets to jump, we still are in a relatively higher interest rate environment, and there's still uncertainty as to when interest rates may fall. This influences people's ability to allocate capital and the timeline for putting capital to work, impacting everything from fundraising at the fund level to fundraising at the company level.
We certainly see some acceleration into the more capacity-constrained boutique managers. Those funds seem to be going in and out of the market a little more quickly than the mega-cap funds, which tend to stay in the market a bit longer. There's also a lot of interest in AI. We're seeing a lot of activity in AI, particularly in early-stage venture capital. There's a lot of capital flowing into those areas.
Overall, the fundraising environment and capital markets environment continues to be relatively slow and methodical compared to a few years ago. For people putting money into private markets right now, as long as you're connected to managers and strategies that are right for the environment, you're going to have a longer deployment cycle and generally be able to deploy capital at more reasonable valuations than we've seen in the recent past. Hopefully, that will translate to better long-term returns. But as private market investors, unlike the public markets where you can see returns quickly, we are long-term investors looking for long-term returns. The ultimate outcome will be years down the road, but we believe it will be a good one given the entry point today.
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