• Most LPs anticipate continued market headwinds but have yet to shift their investment approach to PE
• ESG remains an important consideration for LPs, however, few LPs have hard guidelines driving investment decisions
• GPs are focused on both recruiting and retaining diverse talent to build well-rounded firms and portfolio companies

Moelis & Company (NYSE: MC), a leading global independent investment bank, today announced the results of its 2nd ‘Private Markets Insights’ survey of Limited Partners (LPs) and General Partners (GPs). This edition aims to assess the current private equity (PE) fundraising landscape with an emphasis on Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DEI) initiatives.

The survey takes place in an opaque macroeconomic environment where Moelis found that GPs (67%) and LPs (41%) agree that interest rates pose the greatest threat to private equity performance. Nevertheless only 14% of LPs have shifted their PE investment approach since the fed began raising rates. The survey also found a lack of consensus in LPs’ macro outlook, with 41% of LPs saying the anticipated timing of a US recession is “unclear”.

“Lack of clarity in the macroeconomic environment continues to be an overhang on both LPs and GPs, underscoring the challenges that the PE community faces in putting capital to work,” said Rodney Reid, Managing Director and Head of Private Funds Advisory at Moelis. “While most managers and investors are not looking to overhaul their strategies, the disruptive macro environment has created pockets of opportunity for both LPs and GPs to re-tool, refine and redirect their efforts.”

GPs face a challenging, but not impossible, fundraising environment

The survey found that re-ups remain an important piece of LPs’ planned allocations. Nonetheless, most expect to add new GP relationships and won’t be fully allocated until the second half of 2023:

• 66% of LPs expect to dedicate at least 75% of 2023 allocations to re-ups
• 63% of LPs say they are not planning to cut back new GP relationships
• 61% of LPs anticipate having capital to deploy into the second half of the year

In addition, sector interests have begun to shift:

• Emerging technology (including A.I.) and energy transition are popular themes, with 64% and 54% of LPs, respectively, indicating interest
• More than 20% of LPs indicated an interest in professional sports investing
• Only 12% of LPs indicated an interest in blockchain assets

Spotlight on evolving trends in ESG & DEI

ESG and DEI have been established trends in private equity fundraising for years, but how exactly do they factor into decision-making processes for both LPs and GPs?

The survey found that over 75% of LPs consider ESG in some way during the underwriting process. However, only 26% have strict guidelines on ESG that they are prohibited from violating. Additionally, 69% of LPs claim they do not favor one part of ESG more heavily compared to others during their underwriting process. This could suggest that while LPs believe ESG should be considered in some capacity, there is no consensus on precisely what role it should play in regard to investment decisions.

GPs are dedicating more resources to satisfy LPs’ increased focus on ESG:

• 92% of GPs said that LPs are requesting more reporting and data on ESG and DEI since 2020
• 67% of GPs have either a dedicated in-house professional or a third-party service provider (or both) focused on ESG & DEI

Regarding DEI, GPs continue to prioritize recruiting and retaining diverse talent in part because they believe it can drive superior returns at the fund level. At the portfolio company level, GPs are taking a variety of measures to promote DEI.

Published semi-annually, Moelis’ Private Markets Insights survey aims to assess the current PE fundraising landscape. The 2nd edition captured the views of more than 80 institutional LPs and a dozen senior women and diverse PE professionals in the GP community, representing a broad range of organization types, sizes, and experience. Responses were collected during Q1 2023.

About Moelis & Company

Moelis & Company (“Moelis”) is a leading global independent investment bank that provides innovative strategic advice and solutions to a diverse client base, including corporations, governments and financial sponsors. The Firm assists its clients in achieving their strategic goals by offering comprehensive integrated financial advisory services across all major industry sectors. Moelis & Company’s experienced professionals advise clients on their most critical decisions, including mergers and acquisitions, recapitalizations and restructurings, capital markets transactions, and other corporate finance matters. The Firm serves its clients from 23 locations in North and South America, Europe, the Middle East, Asia and Australia. For further information, please visit: www.moelis.com or follow us on Twitter @Moelis.

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Moelis survey finds most LPs are open to new GP relationships, despite challenging macro conditions and an emphasis on re-ups.