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Private equity, real estate fundraising slows dramatically in Q2 — Preqin

“But the new macroeconomic environment of sustained high inflation and higher interest rates threatens to undermine some of the comparative advantages that private equity has had over public equity markets,” Mr. Joyce said.

Also declining year-over-year was exit value, which totaled $150.7 billion in the second quarter, down 51.7% from the second quarter of 2021.

Real estate fundraising also slowed during the second quarter, with $26.2 billion in capital raised, down 32% from the levels of the first quarter and down 11% from the second quarter of 2021, according to Preqin’s quarterly real estate report.

Real estate debt strategies had the greatest quarterly inflows during the second quarter at $7.7 billion.

“Rising interest rates could be the nemesis for real estate, after having avoided a COVID crash,” said Dave Lowery, senior vice president, head of research insights at Preqin, in a news release on the report. “Early signs of recovery are becoming a fading memory. There is pressure on the market from multiple fronts, leading to lower valuations, a rise in the cost of debt and likely weaker returns. In a market like this, we could see managers and investors adopt a ‘wait and see’ approach.”

Meanwhile, investors flocked to private infrastructure during the second quarter, with $50 billion aggregate raised by only 15 funds during the three months ended June 30, according to Preqin’s infrastructure report. Infrastructure managers raised $72 billion through 24 funds in the first quarter, a record.

The report noted that there were seven funds that closed with more than $5 billion of capital secured during the second quarter, which was two more than had done so in the entire year of 2019.

“This continued fundraising furore is testament to the attractiveness of private infrastructure. To put the intensity of these last two quarters into perspective, the first six months of 2022 has seen the market secure as much capital as one would expect over a whole record year — surprising to say the least,” said Alex Murray, vice president, research insights, at Preqin, in a news release regarding the infrastructure report.

“For the rest of the year, we believe we will continue to see capital raised, albeit at a slower pace given the recent run,” Mr. Murray said. “Overall, this has given the asset class a strong basis for an increasingly active deals market. The proceeding growth in dry powder will drive some hotly contested asset sales in the coming months, especially for assets that can offer protection from stubbornly persistent inflation.”

Also during the second quarter, natural resources funds — particularly energy-focused funds — saw near-record activity due primarily to supply deficits resulting from the Russian invasion of Ukraine that provide funds and investors “with an exceptional opportunity to ride this super cycle more confidently than previous ones,” according to Preqin’s natural resources report.

During the second quarter, natural resources raised $51 billion over 25 fund closures, only slightly less than the record level of $60 billion raised in the three months ended March 31. Nearly all of the second-quarter fundraising — $50.5 billion — was completed by energy-focused funds with the remaining $500 million raised by agriculture and farmland funds.

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