Private credit has trumped both private equity and private real assets once again in the second quarter of the year, with a return of 2.1%, according to MSCI.
While private credit stayed in the green across senior, mezzanine and distressed debt funds, private equity and real asset faced some areas of negative returns. Within private equity, venture capital dropped 0.4% in the quarter, while real estate funds within the real asset category fell 0.3%. This is the ninth quarter in a row of negative returns for real estate, which decreased by 0.8% in Q1 of this year. In 2023 as a whole, real estate dropped 6.4%.
In total, global private equity funds returned 0.8% in the second quarter, compared to 1.2% in the first quarter, while private real asset funds returned 1.1% after 0.7% in Q1.
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Keith Crouch, executive director of MSCI research, said: “Looking ahead, the private-capital landscape remains uncertain as asset managers and asset owners await better exit opportunities in many asset classes. While a significant portion of current valuations are in relatively young investments, there are warning signs in some asset classes — particularly venture capital — that the share of value held in the oldest investments continues to increase. Performance has remained (generally) positive and capital calls remain low, however, so asset owners are in a waiting game.”
The holding periods across private market investments have also risen since their 2022 lows, with venture capital at a weighted average of 5.4 years, its highest on record. There has also been notable separation in venture capital between mean and weighted averages, with high valuation investments being held for longer, according to Crouch.
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In terms of unrealised holdings, fund sectors including venture capital, buyout, private real estate, and private infrastructure all have a strong uptick of valuation growth since 2020. This has reached over $400bn for private real estate and private infrastructure, and near $2.5trn for buyout funds. Yet, while venture capital had been nearing a valuation of $1.3trn, it has now fallen under the $1trn mark.
“First, this is another reminder of the significant growth of the private-capital industry over the last 14 years, with most asset classes quadrupling in size. Second, we can see that a significant portion of the current valuation is in holdings that are less than four years old, from which we would expect few exits,” Crouch said.
“Finally, however, we can note that the value in older holdings has grown on both an absolute and a relative basis: There is more than USD 200 billion in venture-capital holdings that are into the eighth investment year.”
