Secondaries pricing and the Fed: “Every time that guy Jerome speaks, the market changes.”

Uncertainty ultimately keeps buyers looking for discounts, and sellers on the sidelines.

Happy Friday LP’sters

This is Chris, on for our weekly LP column. What’s going on out there? Depending on whom I talk to these days, it’s either really busy or fairly slow.

A source quipped to me this week, when speaking about the outlook for LP secondaries sales: “Every time that guy Jerome speaks, the market changes.” This referring to whether potential LP sellers are getting comfortable with discounted pricing for their PE fund stakes.

Fed chairman Jerome (Powell, that is) and other Federal Reserve governors have been making noise about more aggressive interest rate increases to keep pushing back against inflation. That aggressive stance causes public markets to fall, which naturally infuses the private markets (uncorrelated or correlated?) with uncertainty. And uncertainty ultimately keeps buyers looking for discounts, and sellers on the sidelines.

“Pricing was starting to come back up, and now we’re wondering if it’s going back the other way, with 12/31 [valuation] marks being written up and with more volatility in the market,” the source said. “Seems like a tough time to really shake things loose. Some LPs are not ready to take the pain [of selling at a discount].”

We’ll just keep guessing over here. Meanwhile, we have in the range of $20 billion to $30 billion of LP sales on the market right now – including two big portfolios (as reported exclusively by Buyouts) being shopped by Kaiser Permanente and Norinchukin Bank. Buyouts readers will be well informed about these deals. Question is, will they find buyers, what kind of pricing will they transact at, and, will the resolution of these deals “shake things loose” in secondaries?

By the way, note that comment above on valuations. Anecdotally, we’re hearing that year-end marks are coming in at flat to slightly up from Q3. Some of our LP readers were expecting to see write-down pain with audited year-end marks, but it’s looking like PE valuations are holding steady. We’ll know more officially over the next few weeks.

Well, funds: As challenging as fundraising is these days, there’s no lack of new funds hitting the market. We expect KKR to launch its next flagship fund later this year, and we reported this week that New Mountain is back with its next large pool, which our spies tell us is targeting $12 billion.

“For a variety of reasons, LPs are tapped out, and the cash squeeze they are facing will make it difficult to ramp up commitments in the coming months,” said Bain & Co in its annual global private equity report.

The dynamic last year was a significant shift by LPs into the arms of their deepest relationships, accounting for a fairly strong total amount raised, though across far fewer funds than prior years. We’re likely to continue to see that dynamic play out this year, as the biggest names in the industry – generally (there are a few exceptions having a tougher go, like Carlyle) – are able to attract capital from LPs. And everyone else will be scrambling for the scraps.

Here’s an interesting stat, which helps explain at least part of the pressure LPs have been under in the years of the fundraising bull market: the average period between successive buyout funds dropped 35 percent over the past decade, with GPs coming back to market every three years instead of five, according to Bain & Co’s report. And they are asking for more money each time – 50 percent more in 2022 than for predecessor funds, the report said.

“All of that was fine as long as GPs could recycle a steady amount of capital by maintaining high levels of distributed to paid-in capital (DPI). But as exits – and the outlook for exits – slowed sharply in 2022, GPs had to pare back distributions,” the report said. “LPs were already stretched, and the slowdown in DPI created new liquidity issues. That precluded making further commitments until cash flows improved.”

As always, hit me up with your thoughts, questions, feedback, but mostly, tips n’ gossip at or find me on LinkedIn.