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