PUBLICATION: Rede Liquidity Index 2H 2022 Report

We are pleased to announce the publication of the 10th edition of the Rede Liquidity Index (RLI), looking at institutional investor sentiment toward private equity fundraising in 2022/23. The RLI, a twice-yearly measure of LP liquidity, reflects expectations for overall fundraising momentum and identifies changes in LP appetite for specific segments of the market.

Key findings:

  1. LOWEST RLI SCORE ON RECORD INDICATES A LIKELY SLOWDOWN IN LP DEPLOYMENT TO PE
    Against a backdrop of macroeconomic uncertainty and volatility, the RLI score for 2H 2022 has dropped 13 points to 41 - the lowest RLI score on record – indicating that LPs on average expect to reduce commitments to new funds over the next 12 months. 
  1. SHARP DROP IN EXPECTED DISTRIBUTION VOLUMES IS A KEY AREA OF CONCERN FOR LPS
    With many exit processes on hold or delayed, the RLI for distributions has fallen sharply to a record low of 11. 84% of LPs now expect a reduction in capital returning to them via distributions over the next 12 months. A slow pace of exits was most commonly cited by LPs asked to identify their concerns as they plan their deployment programme for 2023. 

  2. DESPITE A CONTINUED SQUEEZE ON COMMITMENTS TO BOTH NEW AND EXISTING GP
    RELATIONSHIPS, LPS STILL HAVE CAPITAL TO ALLOCATE

    Despite the liquidity squeeze, it is clear that LPs do still have capital to allocate – two thirds of investors reported their private markets portfolio sitting at the middle or lower end of their target allocation. However, with the fundraising market continuing to be crowded, we expect to see fierce competition for LP A record low RLI of 39 for new money commitments highlights the limited capital available for new GP relationships, while the steep drop in the RLI for existing GP relationships from 56 to 42 indicates a significant raising of the bar to secure re-ups.

  1. LOWER MIDMARKET AND MIDMARKET BUYOUTS REMAIN FAVOURED ROUTE
    Around a third of LPs are planning to increase exposure to Lower Midmarket and Midmarket buyouts over the next year. Investors’ recent interest in minority strategies has slipped, with only 15% of LPs planning to increase allocations to venture capital in 2023 and 14% expanding their growth equity exposure.

  2. LPS FAVOUR HEALTHCARE, WHILE INTEREST IN SUSTAINABILITY/IMPACT AND
    TECHNOLOGY PERSISTS
    30% of LPs plan to expand deployment to healthcare-focused funds in 2023, while LP enthusiasm for sustainability and impact has now overtaken technology.

Spotlight on valuations
The broad market volatility seen this year has not yet resulted in significant reductions in private equity valuations. Our survey data shows that LPs’ portfolio valuations have remained broadly flat during the first half of 2022 – 69% of investors surveyed reported valuation swings between -10% and +10% between 31st December 2021 and 30th June 2022, with only 16% experiencing a valuation swing worse than -10%.

Given the challenging macro background, this is an encouraging indication of resilience. On the other hand, six months of flat valuations are a real departure from the rapidly escalating valuations that were recorded following the pandemic. Furthermore, it is common for private markets valuation changes to lag public markets, so this flattening out in performance could be viewed as a prelude to a decline in valuations in future quarters. Click below for the full report.

Learn More

Key Findings Video

Gabrielle Joseph, Head of Due Diligence and Client Development at Rede Partners, presents the key findings from our report in this short video