Letter from the Editors

The year 2022 saw the storm clouds that had been gathering over private equity finally erupt, with broad macro-economic and geopolitical uncertainty, high interest rates and a (largely) aggressive regulatory environment signaling an end to the highly favorable conditions that previously survived even the pandemic. The list of challenges is daunting. Debt for financing deals is harder to come by, and the IPO market is unwelcoming. Tougher rules relating to national security concerns, as well as sanctions in response to Russia’s war with Ukraine, have put a damper on cross-border investment, particularly in China. U.S. regulatory authorities continue to heavily scrutinize PE transactions and put private funds under a microscope—a trend that shows no sign of abating. In renewable energy, governments are often inhospitable to private investment even while seeking to promote decarbonization.

As always, however, the private equity industry’s greatest assets are its resilience and innovation. In the face of less-available capital, sponsors have become more creative in their deal structuring. Sponsor-led secondaries, including continuation funds and funds of funds, have become more common. PE firms are also turning more frequently to co-investors to co-underwrite or warehouse deals as well as for follow-on capital for add-on acquisitions. And with many exits from portfolio companies delayed, sponsors are using back leverage loans and NAV facilities to provide limited partners with liquidity.

The 2023 Private Equity Outlook issue summarizes these developments as they have unfolded in different corners of the private equity world. We hope that you will find this to be a useful guide to the year ahead as you refine your own strategies in this dynamic time.