Top investors with more than $10tn in assets under management have said they will shun venture capital funds in the year ahead in a worrying signal as the UK tries to get more cash flowing from big investors into start-ups.
In a new survey of 178 top institutional investors by Preqin, some 68 per cent of investors indicated their venture capital [VC] portfolio was overvalued.
Three quarters of those surveyed said they planned to commit less than $50m into VC funds in the next 12 months, in a worrying sign for VCs after a torrid year for fundraising.
The figures signal lingering skittishness over venture capital as an asset class after a plunge in valuations of early-stage companies over the past year. Funding figures have fallen sharply from a blockbuster 2021 and 2022 as rising interest rates brought a close to a decade of cheap cash fuelling the sector.
Ministers in the UK have launched an offensive in the UK to try and boost the amount of cash flowing into start-ups in the UK, with a group of top investors backing a move to allocate more than five per cent of their assets to unlisted start-ups.
Chancellor Jeremy Hunt has said unlocking the cash will boost “investment in our most promising companies, driving growth in the UK”.
Cameron Joyce, head of private equity at Preqin said the figures in the survey showed investors are still striking a “cautious tone”, although there “may be some light at the end of the tunnel” as investors indicated an uptick in wider investment in private asset classes.
“As confidence starts to grow that we are approaching or have already hit the bottom of the market, investors look set to continue to deploy capital to private assets throughout [the third and fourth quarters],” he added.
Allocations to private assets are set to grow further more broadly, with just five per cent of investors surveyed planning to sell down their private capital allocations in the next 12 months, and over a quarter planning to increase allocations.
Over a third said they planned to ramp up the amount of cash they were investing in private equity.
The number of private equity deals in the UK fell to 689 from 909 last year, with just 327 deals worth £32bn done in the smaller mid-market, where transactions were expected to recover more sharply, according to the latest deal tracker from KPMG.