Global private equity and venture capital fund launches in the first half of 2023 lagged significantly behind the pace set last year as challenging fundraising dynamics and a slower tempo of investing gave managers reason to second-guess bringing new funds to market.

Fund launches are on track to register a steep decline this year after a weak first half when just 319 private equity and venture capital funds entered the market, according to S&P Global Market Intelligence and Preqin data.

If the first-half number is duplicated in the second half of the year, fund launches will decline 67.2% from their full-year 2022 total. Fund managers would need to launch five times as many funds in the second half of 2023 to equal the 1,946 fund launches recorded globally last year.

At a time when some significant private market investors, including many public pension funds, are facing constraints on their ability to deploy capital, general partners (GPs) are cautiously timing the debut of new funds. GPs are waiting for an improvement in the exit environment, which would boost distributions to limited partners (LPs), giving those LPs more cash to channel into new commitments.

GPs are also focusing on improving portfolio performance to present the best possible story to future investors, said Bart Molloy, a partner at placement agent Monument Group.

"You only get one bite at the apple in terms of presenting [a fund] to the market and to LPs," Molloy said.

LP outlook

Fund managers waiting for a turnaround in investor sentiment will have to be patient.

Fundraising adviser Rede Partners LLP predicted continued slow private equity fundraising based on a first-quarter survey of 149 global LPs, citing the slowdown in distributions and faltering private equity performance for their lack of enthusiasm.

Large US pension funds are also more likely to be nearing or even above their allocation targets for private equity, according to Rede Partners, noting those pensions have a disproportionate impact on overall fundraising trends because of their size.

A recent Market Intelligence analysis of pension fund deployment to private equity found global pension funds were, at the median, slightly under-allocated to private equity, meaning they have some wiggle room to add new commitments or re-up with their current fund managers.

But topping the list of those over their target allocations for the asset class were 10 US pension funds, led by New York State Common Retirement Fund at $11.56 billion over its $24.23 billion target as of mid-June.

– Download a spreadsheet of data from this story. – Read about Q2's steep year-over-year decline in PE entries. – Catch up on private equity headlines.

The same investor liquidity crunch is playing out in venture capital, said Scott Burger, a partner in KPMG LLP's Bay Area alternative investment practice.

"Given the very slow pace of M&A and IPO activity, certainly through the first half [of 2023], people are just not getting the dollars in order to reinvest in subsequent launches," Burger said.

H1 fund launches

The United States and Canada led the way with 160 fund launches in the first six months of the year, just over half the global total. Next came Asia-Pacific with 74 funds and Europe with 56 funds entering the market.

Private equity buyout funds represented seven of the 10 largest fund launches in the first half.

The largest debut of the first half was middle-market PE firm AIP LLC's $5 billion American Industrial Capital Partners Fund VIII, which launched in April. New Jersey Division of Investment and Massachusetts' Pension Reserves Investment Management Board committed $150 million and $100 million to the fund, respectively.