The Plummeting Decline in Trust in Private Equity Funds Has Stopped; 2023 Could Be a Year to Remember

The latest index shows a halt to what seemed like yet another free fall as inflation and the war in Ukraine took a toll on the global economy in 2022. The latest Deloitte survey ‘Expectations and Trust in Private Equity Funds‘ reveals glimmers of optimism regarding market activity as economic expectations stabilize and selling prices decrease, creating potential for a good year, with more than 80 percent of respondents convinced that 2023 will be a good year in terms of returns.

This has created an appetite for investment among general partners (GPs), with a doubling of respondents seeing more active opportunities now (41 percent) than in the summer of 2022 (18 percent). Transactions could be driven by decreasing selling prices, with nearly half of respondents (45%) believing that seller price expectations have decreased in the second half of 2022, and almost two-thirds (64 percent) expecting them to decrease in the first half of 2023.

– The market has experienced an unusually large number of shocks in just three years, with the post-pandemic recovery giving way to inflation and rising interest rates, causing investors to pause and reflect. In 20 years of our research, we have seen that every shock has been accompanied by an increase in confidence, improvement in economic conditions, and a rise in the number of transactions, so we believe that investors from the region will leverage their experience to help businesses remain resilient and seize opportunities for sustainable growth in challenging times – said Ante Salopek, manager in Deloitte’s financial advisory department.

ESG as a Tool for Value Creation

Funding sources are changing, with two-fifths of investors increasingly turning to credit funds and direct and alternative debt financing funds due to the difficulties in financing transactions through business bank loans.

General partners are making progress on their ESG journeys, with more than one-fifth already implementing commitments and targets related to decarbonization, a 50 percent increase compared to our summer survey. Another two-fifths of respondents are beginning to develop them, which is nearly double the number from our last survey.

– Investors are increasingly embracing ESG guidelines as a tool for value creation. We see how the former intentions of our respondents are turning into meaningful action, which is a very positive step – emphasized Salopek.

Indeed, the majority of participants in the latest survey (52 percent) now accept ESG as a tool for creating value for portfolios, which is significantly higher compared to our last survey, while an additional 24 percent of respondents see ESG as a strategy for risk reduction.

Thus, Deloitte concludes, last year’s plummeting decline has been halted as experienced investors strive to continue developing portfolios and businesses in a challenging paradigm, and 2023 is expected to be a year to remember.