Stay informed on the impact of private equity struggles on hedge funds

Private Equity Slowdown Impacts Hedge Funds’ Fundraising Efforts

The private equity industry’s struggle to return money to clients is having a ripple effect on hedge funds, which rely on the same institutional investors for fundraising. Hedge funds seeking to raise money are facing challenges as institutional investors are holding back due to a slowdown in distributions from private equity funds.

According to Michael Monforth, global head of capital advisory at JPMorgan Chase, the lower rate of distributions from private equity, debt, and venture funds is causing some allocators to pause on new investments into illiquid funds and reduce new investments in more liquid hedge funds.

Last year, buyout-backed exits fell to their lowest level in a decade, leaving the private equity industry with a record backlog of companies worth more than $3 trillion. This slowdown in dealmaking has made it harder for private equity firms to return money to their backers, impacting the overall flow of capital in the alternatives market.

The lack of distributions from private markets is also affecting the market for new hedge fund launches. Former Millennium co-chief investment officer Bobby Jain had to scale down fundraising ambitions for his new hedge fund, Jain Global, due to the capital-constrained environment.

Investors are waiting to receive more money back from their private equity investments before reinvesting, leading to a lower velocity of capital flowing throughout all alternatives. This trend is becoming a real issue for both private equity and hedge fund managers as they navigate the current fundraising landscape.