The private market's dependency on the public markets

Denominator effect

As global inflation figures continue to rise and interest rates keep up, volatility has upended the investment market in 2022.

With the FTSE down around 8% last year and S&P off 17%, one constraint facing LPs is the so-called denominator effect, triggered by the decline in public asset valuations this year. Some LPs had to cut back on investing in private fund managers or free up their capital through secondary sales of fund stakes because their holdings of private assets exceeded the allocations allowed under their mandates. We are already seeing this happen, with analysis from Coller Capital predicting that only 27% of LPs plan to increase their allocation to private equity over the next 12 months, down from 4...