Numis: Private Investors Shift To Profitability As Recessionary Fears Persist

A survey of 30 leading growth investors within private markets, including BlackRock, Softbank and Andreessen Horowitz, revealed investors were erring on the side of caution, shifting focus towards cashflow positive businesses.

According to Numis, appetite amongst this cohort persists, driven by dry powder presenting a window of opportunity for companies with steady fundamentals.

According to research firm Preqin, levels of unspent money in private equity funds climbed to new highs of $1.7trn this year.

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"After record levels of private market activity in 2021 the steep declines in public markets and various macroeconomic headwinds are impacting private markets. As a result, activity levels have moderated and valuations are undergoing a significant recalibration in anticipation of a sustained downturn in the business cycle," said Alex Ham, co-CEO at Numis.

Pessimism for the macroeconomic outlook had intensified, the survey found, with 60% of investors now "highly cautious" in their stance, compared to just 10% in in the first quarter.

90% forecast a US recession within 12 months.

Despite private market valuations remaining largely opaque, all investors polled predicted private valuations would reduce, but suggested dominant companies would command a premium. Up to 90% felt there would be "misalignment" between founders' and investors' valuation expectations.

Deep Dive: Volatility presents opportunities in private equity 

Ham added: "With investors still active in the market, however, there are opportunities for founders to attract capital, but they should recognise that investors are focusing on burn rates, runway and capital efficiency given the market conditions.

"For companies with strong fundamentals that can secure capital to extend runway, acquire talent and undertake M&A, there is still a strong outlook. Ultimately, investors remain excited regarding the value creation opportunity in private markets."

Participants advised the best companies to hold additional capital now in order to solidify competitive leverage, ahead of further market deterioration.

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