Brighton House Associates H1 2022 Fundraising Report

2022 has truly been an unprecedented year for raising capital in the private markets. As pandemic-related restrictions abated, the market saw an enormous influx of funds come to market. With significantly more funds in market than previous years, LPs have had to deal with an increasing flow of fund re-ups and GPs have had to fight through a very crowded market of competitors.

Brighton House spoke with over 1,000 LPs, both institutional and family office investors, in the first half of 2022 and have compiled their outlook for our H1 2022 Fundraising Report. The data below is structured to highlight the overriding themes we heard from LPs to provide guidance as GPs look to raise capital through the end of 2022 and into 2023.

Positioning for 2023 Commitments

By the end of Q1, over 25% of the LPs we spoke to had their 2022 budget fully committed and by the end of Q2, that number had risen to nearly 70%. Many LPs struggled to keep up with the increased flow of re-ups, let alone look at new opportunities.

There were some bright spots, however. Throughout our discussions, we spoke with several LPs just entering the private markets or looking to expand their coverage. One insurance company on the east coast reported they were doubling their exposure to private markets from 10% to 20% to reduce their exposure to public markets. Another investor, a recently established single family office in the Midwest, was looking to commit over $1bn in capital to the private markets in the next twelve months.

Many LPs stressed the importance of getting into their pipeline early as they expected to have available capital to deploy in the beginning of 2023

The consistent feedback from LPs was that they believed most re-ups were behind them and were beginning to turn their attention towards Q1 2023 for new commitments. As they looked ahead, several strategies were mentioned as being of interest.

Popular Strategies

LPs reported that they remain on the lookout for strategies that were either underrepresented in their portfolio or those that would benefit from a reset in market pricing and valuations.

We consistently heard from LPs looking for exposure to specialized, middle-market buyout GPs with expertise in investing in a specific sector or market opportunity. Many LPs remarked that some of their current GPs had grown too large and there was concern GPs had "sized-out" of their core market and the opportunity for alpha creation had diminished. Performance and track record also became very important in reviewing new GP relationship. One institutional investor in Switzerland reported that although their portfolio is mature, their concern was missing out on compelling opportunities and "any GP in the top 10% they need to look at."

The tech sector, despite the market correction, continued to remain of interest to LPs. One family office in the Middle East reported in May that they are primarily interested in GPs investing in "future-looking disruptive technology, with long-term potential, which will perform well regardless of the overall market."

Market Correction and Potential Recession
Not surprising, many investors mentioned concern for what a recession would mean for their portfolios. This sentiment resulted in some LPs we spoke to opting for pausing on any allocations until later in the year when they would have more clarity on the direction of the market. Others viewed the current market as an opportunity where specialized GPs could take advantage of pricing flexibility to gain access to deals at more attractive prices. One endowment in the Southeastern US mentioned they had launched a strategic opportunities portion of their portfolio to invest in alpha-producing strategies poised to outperform in any market.

We also saw an increase in interest in real assets as a hedge against rising inflation as well as strategies poised to profit from energy transition. ESG and Sustainability continued its importance in LP's view. Brighton House brought several ESG funds to the market in Q1 with very positive response from the LP community.

LPs Raise Strategy-Specific Vehicles

As a continuation of the specialization theme mentioned above, Brighton House spoke with several LPs which had set aside or raised dedicated pools of capital targeting specific strategies. LPs continued to stress Diversity and Inclusion as areas of interest, although we have yet to see a significant flow of capital into these strategies. We spoke to five LPs in H1 which had dedicated a portion of their capital to invest in healthcare, some looking at the pharma market and others looking for buyout strategies targeting healthcare services and tech.

In light of the pandemic economy and market correction, we also spoke with LPs looking for further exposure to secondaries and fund restructuring. One fund of funds in Canada remarked they had recently raised a fund to invest in fund continuation vehicles as opportunity set for these investments had increased.

Looking Ahead

The overall sentiment from LPs across all of our discussions was that H1 2022 was one of the busiest times they had seen in terms of funds in-market and that new available capital was limited. Their belief was that the glut of funds in the market had begun to abate in Q2 and now were looking ahead towards year-end and early 2023 to begin expanding their portfolios.

As GPs look towards capital raising over the next twelve months, it is vital to begin the process early to enter LPs pipelines as capital becomes available.