As 2023 dawns, the private equity fundraising landscape is altogether changed from a year ago.

Against a backdrop of economic uncertainty and volatility, capital raising in the North American market began to slow last year, as suddenly overstretched LPs erected supply barriers to proliferating funds. While the market was busier than ever, LPs gradually began to reduce their pace, getting pickier about re-ups and starting to cull relationships in their portfolios.

In the year ahead, challenges to raising capital will remain myriad. Supply shortage is the most immediate problem, but there are others. They include LPs with newly enhanced leverage taking a harder look at things like fund terms; team stability and any hint of turnover; GP strategy drift and expansion into non-core areas; and, of course, weakness in returns.

Top-tier managers will probably continue to hit their targets, even as they boost their ambitions. Hellman & Friedman, for example, is targeting $25 billion for an 11th flagship, and our sources believe it will not have much trouble reaching its goal, even though the vehicle comes just over a year after the closing of the $24.4 billion Fund X.

“Fund sizes may grow, but they’re not going to grow at the same rate they did”

Scott Voss

For almost everyone else, the picture may not be as rosy. In a November interview with Buyouts, HarbourVest managing director Scott Voss referred to potential “consolidation” arising from market challenges, including elongated fundraising cycles and strategy tweaks.

This being said, opportunity, as always, remains. Generally speaking, investors remain bullish about the long-term future of private equity and other alternative assets. In addition, periods of dislocation give GPs a chance to be creative and generate outsized performance.


Total capital raised (preliminary) in North America, 2022 (a slight decline from $342bn in 2021)

Private credit is more popular than ever. LPs are paying fresh attention to detail. Meanwhile, climate and energy transition strategies are showing surprising perseverance in a tough fundraising environment.

In addition, secondaries remains an in-demand niche strategy. And once price stability returns to the market, secondaries will offer a much-­needed­­ mechanism to LPs seeking ways to generate liquidity, as well as to GPs looking for ways to achieve exits.

In the following, Buyouts identifies 10 themes it believes will influence or dominate the fundraising landscape this year.

Out of money

LPs are low on cash. Many have hit or exceeded allocation targets, thanks to the denominator effect. More than two-fifths of respondents to Coller Capital’s Winter 2022-23 Global Private Equity Barometer said this may reduce their commitment pacing over the next one to two years.

Investors are also cash-poor because of weaker exit markets, which have dried-up distribution flows. In short, private equity’s customer base is “out of money,” Hamilton Lane’s head of global investment activity Drew Schardt says, forcing LPs to make tough choices about which funds to lean into and which not.


Total fund closings (preliminary) in North America, 2022, down from 1,099 in 2021, a 21% decline

It is not clear when the empty coffers can be refilled, in part because some institutions made allocations in 2022 by borrowing from 2023 allotments. In addition, relatively few are prepared to increase their targets.

Accelerated fundraising hits a wall

With supply no longer infinite, GPs are slowing their pace. This upsets a recent pattern of accelerated fundraising, with sponsors deploying capital quickly and then roaring back to market with new offerings, often only one or two years after prior closings.

Overburdened, under-resourced LPs is another factor. Used to making commitments over four to five years, investors are contending with an unheard-of number of products, many reflecting platform extensions and non-core strategies.

“We’re trying to focus our dollars on where we can get the most bang for our buck: who can we be meaningful to?”

Scott Ramsower
Teacher Retirement System of Texas

Several are resisting the surge, declining to commit to funds they might have readily signed onto in the past.

This is causing managers to keep funds open longer. Some who have been in the market for a while have begun to request extensions. “A lot of them are stretching their closing dates into 2023 to try to get additional allocations,” says Craig Ferguson, Investment Management Corp of Ontario’s managing director, private equity.

Ticket sizes under pressure

Along with moderating their pace, GPs are rethinking fund sizes. Often part and parcel of accelerated fundraising, step-ups in targets are commonplace in private equity, to the point where even the doubling or tripling of fund sizes no longer has the power to surprise.

Step-ups are an industry-wide phenomenon, driving a steady climb in the average size of capital pools. But they are most noticeable at the top, mostly because of a long-term trend that is seeing more LP money concentrated in the hands of fewer funds.

Due to cash constraints, LPs are pushing back on ticket sizes and recommending trims. “Fund sizes may grow, but they’re not going to grow at the same rate they did,” HarbourVest’s Scott Voss said in our November interview.

Fortune favors incumbents

GPs of all types and sizes are sharing the pain of fundraising challenges. Large, brand-name sponsors, however, might have an edge owing to a strong LP focus on re-ups. More than two-thirds of respondents to Probitas Partners’ 2023 Institutional Investors Survey said they will zero-in on incumbents in the months ahead.

Large managers with global platforms are also best positioned to find alternative sources of capital at a moment when traditional LPs are overallocated. Some are working hard to find new pots of gold among high-net-worth individuals, non-traditional institutions and overseas investors.

“You think about an LP-led portfolio that has 100 assets, it’s a lot to get your arms around. That’s why you see some of that LP-led transaction volume fall”

Verdun Perry
Blackstone Strategic Partners

The upshot is the biggest funds in the market today, such as Apollo Investment Fund X, Blackstone Capital Partners IX, Carlyle Partners VIII and Hellman & Friedman Capital Partners XI, could have an easier time of it than others.

LPs gaining clout

One positive for LPs in a rocky fundraising environment is the potential for negotiating power to swing back in their favor. Over the past decade or so, GPs have mostly held the leverage in setting terms and conditions for funds. In some cases, they have been able to dictate terms.

But as capital grows scarce, GPs may have to make concessions on items like fees, governance, co-investment opportunities and conflicts. Watch for things like fee breaks, LP-friendlier key-person arrangements, tougher no-fault divorce and other end-of-fund control issues, as well as better reporting and transparency processes.

“We’re trying to focus our dollars on where we can get the most bang for our buck: who can we be meaningful to? Advisory boards, LPA negotiations, co-invest are all very important to us,” Scott Ramsower, head of private equity funds at Teacher Retirement System of Texas, says.

No relief from secondaries markets

Cash-poor LPs are seeking relief in the secondaries market. The share of investors planning to sell private equity fund stakes in 2023 rose to 22 percent from last year’s 15 percent, according to Private Equity International’s LP Perspectives 2023 Study.

“[LPs] will be forced to neglect new relationships”

Jill Shaw
Cambridge Associates 

The problem is that the secondaries market is not an optimal liquidity tool right now. Pricing uncertainty is helping to gum up the works when it comes to executing on an LP portfolio sale. In addition, the number and variety of underlying assets in big LP portfolios make them harder to price.

“You think about an LP-led portfolio that has 100 assets, it’s a lot to get your arms around. That’s why you see some of that LP-led transaction volume fall,” Verdun Perry, global head of Blackstone Strategic Partners, says.

Challenges for first-timers multiply

At the best of times, emerging managers face barriers to getting the attention of investors. Challenges are reinforced when LPs are overallocated and providing what little money they have to re-ups, as this means they “will be forced to neglect new relationships,” Cambridge Associates managing director Jill Shaw says.

The 2022 Buyouts Emerging Manager Survey, conducted by Gen II Fund Services, underscored the challenges. It found that almost two-thirds of respondents agreed or strongly agreed that LPs are hesitant about backing first-timers. A mere 15 percent disagreed.

On the other hand, investors retain an appetite for emerging managers formed by seasoned GP teams. Probitas Partners’ 2023 survey found that 75 percent of respondents are interested in spinouts, where the team has significant experience working together.

Private debt, real assets in vogue

Tough fundraising conditions are of most relevance to private equity. For GPs specializing in other asset classes, macro factors, above all inflationary pressures and interest rate hikes, point to an abundance of fresh opportunities. Two examples are private credit and real assets.

In private debt, an especially hot strategy at the moment is direct lending oriented to sponsored-backed mid-market deals. Owing in part to the withdrawal of traditional competitors, direct lending has reportedly increased its share in this space.

For LPs, private credit strategies are attractive due to key characteristics like floating rates, which track rising rates. A recent white paper by Ares ­Management found that “direct loans are set up to outperform in the current interest rate hiking cycle and related market ­volatility.”

Climate funds have staying power

Another potential bright spot in fundraising could be climate and energy transition products. Fundraising of this ilk seems to be running counter to overall trends, with a plethora of offerings, sponsored by managers both big and small, entering the market.

The reasons for this are clear. Many LPs are seeking opportunities in harmony with their net-zero and other ESG policies. In addition, there is a growing perception that major secular drivers are behind investing in sustainability themes.

Just as important are billions in stimulus created for renewable power by government programs, such as the Biden administration’s Inflation Reduction Act. Another influence is changing weather patterns, something that is “on everyone’s mind in a deep way,” TPG executive chairman Jim Coulter said.

Distress on the horizon

Economists differ on the prospect of a recession in 2023 or 2024 and, if one eventually takes hold, on the degree of its intensity. If the economy does hit rough waters, complex dealflow is likely to follow, generating opportunities for special situations investors.

A survey of finance professionals by AlixPartners found a recession will drive “not just company restructurings” but “a new round of industry consolidation and reinvention.” More than three-quarters of respondents said M&A involving distressed assets will rise, while 12 percent said these will reach a new high.

“Predictions of a surge in restructuring activity may finally be more than wishful thinking on the part of restructuring professionals,” says Hilco Corporate Finance chief executive Geoffrey Frankel.