Looking ahead: Opportunity in middle market private equity
After a decade with interest rates near zero, investors are now pivoting from a world of abundant capital to a tightening market for financing. With worries of recession, rising rates, inflation, geopolitical conflict and more, private equity managers in the U.S. middle market are bracing for continued macroeconomic uncertainty in 2023.
Our private equity teams have developed a strategy to navigate the year ahead and we anticipate greater use of equity co-investment to right-size transactions. In our many discussions with U.S. middle market private equity sponsors (GPs) and fellow investors (LPs), we identified the questions top of mind for all.
Five Questions for 2023:
- Should LPs continue to support the U.S. middle market when large buyouts may show lower dispersion of returns?
- What are your expectations for the dealmaking environment in 2023?
- Are private equity portfolio valuations due for a downgrade?
- The pace of change has accelerated in all areas, from deal flow, to fundraising, to co-investment processes. How do you see this dynamic creating opportunity?
- When investors look back at industry growth, technology and healthcare have been clear winners over time. Looking ahead, what sectors will remain attractive?
Private capital can play an important role in portfolio construction as it helps create new exposures within a traditional portfolio while also increasing overall return potential.