By most measures, 2021 has been a record year for the private equity (PE) and venture capital (VC) ecosystems. Funds raised, capital invested and dry powder have all eclipsed previous peaks. While concerns over market factors such as spiking inflation and the potential for rising rates continue to loom, they haven’t slowed the spin of the private capital flywheel.

Limited partners’ (LPs) appetite for PE and VC has ticked up, as evidenced by the increased allocations to these asset classes and new LP entrants into the space — all buoyed by continued low interest rates and strong private market returns. This trend has allowed fund managers to come back to market more quickly, while simultaneously raising larger funds, often closing above their targets. This is especially true for late-stage VC and growth funds, in addition to funds targeting hot sectors such as climate tech and fintech. This torrid pace of fundraising has seen many LPs hit their target asset allocation thresholds earlier than usual this year; however, we expect to see the fundraising trend toward alternatives continue in ‘22.

On the liquidity front, IPOs are dominating the exit markets, while M&A and buyout deals are on track to outpace last year’s lull. We expect this pace of activity to continue, as ample dry powder on the sidelines is ready to be deployed. With the innovation economy continuing to march on at a healthy clip, we at SVB are hopeful for the future as we head into the new year.