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Overview
Private Equity (PE) exit activity slowed drastically in Q1 2022 as exit count and value dropped by 57.2% and 57.5% respectively from Q4 2021. High inflation, rising interest rates and war in Ukraine have caused heightened uncertainty causing many PE firms to hold onto the portfolio companies instead of listing them in a struggling public market environment. Initial public offerings (IPOs) which accounted for an outsized share of exit activity throughout 2020 and 2021 came to a halt in the first quarter, accounting for less than 1.0% of all exits as public market valuations fell sharply.
Chart 1: IPO market closed for business
Source: Pitchbook
Venture capital (VC) market activity reached multi-year highs in 2021 and although it slowed from the record pace set in 2021 it still remained above the long term average in Q1 2022. The number of deals which took place with non-traditional investors surged throughout 2021 and into Q1 2022 as institutional investors searched for access to high growing parts of the VC industry. Many traditional venture capital fund managers attribute some of the lofty valuations in VC markets to non-traditional investors willing to pay-up to get access to some of the most sought-after early stage companies. The valuations of deals including non-traditional VC investors were four times the valuation of deals that only included traditional VC investors.
Chart 2: Venture capital non-traditional investors
Source: Pitchbook
Commodities across the energy and industrial metals sectors have fallen sharply in recent weeks on heightened fears of a recession in many regions across the world. The price of oil is set to fall in June, the first monthly decline since November 2021, as investors fear a global slowdown will materially impact demand for energy. Copper and iron ore which are closely tied to economic growth prospects have fallen 12% and 15% respectively in June whilst reports of excess stockpiles in China for both metals have added to weakness.
Chart 3: Commodities soften on weaker growth prospects
Source: Bloomberg
Stephen Dickinson
Investment AnalystDarragh Kennelly
Investment Analyst
