Private equity only alternatives asset class with negative return, per McKinsey

Author Arleen Jacobius
Arleen joined the Los Angeles office of P&I in 1998. She covers real assets and all alternative investment asset classes except hedge funds. She also covers various asset owners in the West including the California Public Employees Retirement System and California State Teachers’ Retirement System. Arleen previously wrote about municipal bonds for the Bond Buyer. She began her career in journalism as a staff reporter and, later, columnist for the Los Angeles Daily Journal. She holds a B.A. from UCLA and a juris doctorate degree from University of La Verne. She is also a member of the California Bar Association.
Mar 21, 2023
2 months ago
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Private equity was the only private markets asset class to have negative returns, with a -9.2% net internal rate of return for the year ended Sept. 30, according to McKinsey & Co.'s Global Private Markets Review 2023 released Tuesday.

The best-performing private markets asset class was natural resources with a 15.6% net IRR.

Private equity continues to be the private markets asset class in which manager selection matters the most, McKinsey's report said. The spread between top- and bottom-quartile funds was 18.4 percentage points for 2009 to 2019 vintage funds for the year ended Sept. 30, more than any other private asset class, the report noted. Top-quartile private equity funds had a 29.8% net IRR, while the bottom 25% of managers had an 11.4% net IRR for 2009 to 2019 vintage funds for the year ended Sept. 30.

The next biggest spread was real estate with 11.3 percentage points, 17.8% net IRR for the top 25% of managers and 6.5% for the bottom quartile.

Meanwhile, global private markets fundraising for all of 2022 was down 11.4% from the year before to $1.2 trillion. Real estate fundraising was down the most, 23%, to $166 billion, followed by private equity down 15.2% to $655 billion. Natural resources and infrastructure fundraising increased by 6.5% to $158 billion and private debt was up 2.1% to $224 billion in 2022.

However, the rocky fundraising in 2022 did not impact all fund sizes equally. The largest funds, those with more than $5 billion in capital commitments raised a record $445 billion in 2022, up 51% from 2021. Funds greater than $5 billion accounted for 37% of all the private markets capital raised in 2022 compared with only 12% in 2017.

At the same time, fundraising for funds smaller than $1 billion was down 31% to $349 billion, and accounted for 29% of all private markets funds raised in 2022, down from 47% in 2017, McKinsey reported.

Author Arleen Jacobius
Arleen joined the Los Angeles office of P&I in 1998. She covers real assets and all alternative investment asset classes except hedge funds. She also covers various asset owners in the West including the California Public Employees Retirement System and California State Teachers’ Retirement System. Arleen previously wrote about municipal bonds for the Bond Buyer. She began her career in journalism as a staff reporter and, later, columnist for the Los Angeles Daily Journal. She holds a B.A. from UCLA and a juris doctorate degree from University of La Verne. She is also a member of the California Bar Association.