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Q4 2022
Quantitative Perspectives: When the Tide Goes Out
November 22, 2022
PE hangs in the balance as recession odds grow
Slower growth, higher short-term interest rates, tight labor markets—as one economic indicator after another points to an increasingly likely recession in late 2023 or early 2024, the rate of dealmaking in private equity hasn’t shown such signs of weakness. But tougher financing conditions might finally slow down deal activity in coming quarters.
Our Q4 2022 Quantitative Perspectives Report breaks down the deteriorating macroeconomic backdrop and explores how those dynamics could affect the PE market next year.
Key takeaways:
Slower growth, higher short-term interest rates, tight labor markets—as one economic indicator after another points to an increasingly likely recession in late 2023 or early 2024, the rate of dealmaking in private equity hasn’t shown such signs of weakness. But tougher financing conditions might finally slow down deal activity in coming quarters.
Our Q4 2022 Quantitative Perspectives Report breaks down the deteriorating macroeconomic backdrop and explores how those dynamics could affect the PE market next year.
Key takeaways:
- A soft landing is becoming less and less likely, and the odds of a recession have risen to 65% in recent months, our model predicts.
- The leveraged loan market, which has fueled the buyout engine for years, has nearly shut down as new debt issuance fell to the lowest volume in more than two years.
- Lags between public and private market reporting mean that many LPs’ portfolios are likely overweight to private investments. That could make fundraising a greater challenge for GPs, especially those with unproven strategies.