Say it with us: it’s been a year.
Following a blisteringly positive 2021 for financial markets, 2022 has been more challenging for nearly every asset class. While many indices remain significantly below the peaks reached in 2021 — the Nasdaq Composite, for example, is roughly 30% off of its record high1 — public markets have shown resilience and the bottom has not fallen out.
A similar story is playing out in private markets. Although private market valuations often remain open to interpretation and move at a slower pace than publicly traded stocks, several indicators show that returns are softening but not nosediving since the public markets started their precipitous decline a year ago. Through the end of October, private company shares traded on the Forge platform at a 47% median discount to their last primary round, and discounts to the last primary have grown steadily since January of this year.2
Additionally, CalPERS, the largest public pension fund in the U.S., marked its private equity portfolio from $52.83 billion at the end of Q2 2022 to $48.84 billion at the end of Q3 — a near 8% drop. While this may be due to markdowns or reduced positions, it can be a lagging indicator given that GPs have 120 days to report financial data to LPs, as CalPERS explains.5 Meanwhile, the pension’s public equity portfolio essentially held steady during that period.
On a less anecdotal level, mutual funds managers can also provide insight. These investment giants must disclose their valuations for private holdings on a quarterly, if not monthly, basis, and many hold shares of the most prominent private tech companies. Whether they mark valuations up, down, or at par to companies’ last funding levels can indicate which way the wind is blowing. These managers marked 62% of companies at a discount to their last funding round in Q3 2022.6
As we round the corner into 2023, private market investors will no doubt keep one eye on macroeconomic indicators like inflation, interest rates, and earnings – while keeping another on valuations, sectors, and trends that propel this space.
If the broader economy manages a soft landing, private markets may rebound and be poised for a strong year ahead.