Executive Summary 

Macroeconomic conditions have become increasingly volatile due to rising inflation, interest rate increases, Russia’s invasion of Ukraine, tensions with China and uncertainty about the 1H23 financial market. As such, private equity (PE) deal value and count have decreased from the record-breaking year of 2021. However, PE remains relatively tenacious, with 2022 being the second-best year for PE performance and 1Q23 metrics well above the pre-pandemic averages. With longer hold times and growing economic concerns, sponsors are adapting to remain competitive in an uncertain market and maximize the value of their portfolio companies.

See below for more in-depth information on these key trends: deposits diversification and stability, portfolio company value creation, first-out last-out (FOLO) unitranche facilities, investor preferences in larger and more diversified funds, and secondary liquidity trends for sponsors.

Key Trend Highlights

Deposits Diversification and Stability

Liquidity remains a critical component for financial sponsors as firms look to maintain the ability to make investments and ensure stable operating cash accounts for their portfolio companies. Following the stress in the banking system in the first half of 2023, sponsors have been focused on ensuring that deposits are safe and stable. Sponsors and portfolio companies started looking at liquidity and excess deposits solutions that optimize returns but minimize risk. Some of these solutions include money market deposit accounts (MMDAs), money market funds (MMFs) and insured cash sweep (ICS) accounts. Each of these products has a different underlying risk profile and corresponding market return. PNC remains uniquely positioned to offer liquidity and cash management solutions beyond the products mentioned above for operating, reserve and strategic needs to both sponsors and their portfolio companies.

Portfolio Company Value Creation

In an increasingly competitive environment further driven by lower valuations and higher cost of debt, many PE firms began focusing on creating value for their portfolio companies in a more systematic way. This concept, also referred to as value creation, has been one way that firms differentiate themselves and optimize the value and return from their investments beyond traditional levers. Although there are many ways that firms create value and drive efficiencies for their portfolio, three of the more common areas of focus include technology/ digitization, human capital, and environmental, social, and corporate governance (ESG). 

PNC’s Financial Sponsor Coverage (FSC) group helps to solve the needs of PE and other financial sponsors across the investment life cycle. FSC works closely with value creation and portfolio operations/resources teams to further execute value creation initiatives, automate manual processes and implement products that can be leveraged to maximize impact.

First-Out Last-Out Unitranche Facilities

FOLO unitranche facilities typically combine a first-lien and second-lien credit facility into one single secured loan. While the unitranche is secured by a single lien on a common pool of collateral, the first-out lender, such as a bank, would have priority in recovering certain payments, such as interest, principal, fees, costs and other charges, ahead of the last-out provider. First-out and last-out lenders have different risk appetites, and the unitranche combines these two parties in a one-stop arrangement. The features that make a unitranche structure attractive include higher leverage profiles, flexible covenants, minimal payback requirements, simplicity (single loan document) and scalability.

PNC Business Credit’s Steel City Capital Funding division works with a network of private lenders to offer clients/ sponsors a full solution. Borrowers benefit from revolving bank liquidity, a more competitive total cost of debt and a full suite of bank products. Direct lenders benefit from keeping a higher portion of their commitment funded, offloading non-core loan administration requirements and yield enhancement created by the first-out funding, allowing them to “sharpen” the overall pricing of the unitranche.

Investor Preferences: Larger and More Diversified Funds

Investors have shifted their focus to larger funds as firms look to invest in high-quality assets in an effort to mitigate risk. The fundraising environment in 2022 and the early half of 2023 became more congested compared to 2021, and the number of funds closed dropped.

However, the dollar amount of capital raised was comparable as the median fund size increased substantially. Investors have subsequently scaled down on new commitments, particularly for smaller and newer funds. In current market conditions, they are being selective and choosing sponsors with proven performance or staying with their existing managers. 

More funds are expanding their capabilities by launching new platforms to target the private credit market and investing across a variety of asset classes and varying fund structures to keep investors and attract new ones. These trends favor funds with the capital and talent to run these businesses successfully. Despite the headwinds in fundraising conditions, investors are reportedly less concerned than they were during the global financial crisis 15 years ago due to the development of more advanced systems to manage volatility in portfolio construction. The Diversified Financial Institutions team at PNC works closely with sponsors to foster ongoing, strategic dialogue and share sector experience and best practices. The team assists clients in accessing leverage and gaining performance efficiencies through a variety of capital markets, structuring and value-add capabilities.

Secondary Liquidity Trends for Sponsors

The private secondary market continues to evolve to a permanent and critical liquidity outlet for both private fund limited partners (LPs) and general partners (GPs). The transformation of this industry has been largely driven by the increased adoption and use of secondary transactions by the GP community. Through the secondary market, GPs have at their disposal a suite of liquidity options at both the fund and company levels that can supplement or replace traditional capital markets channels. For example, the continuation vehicle (or CV) is a tool used by the sponsor to recapitalize an asset or group of assets that is currently held in an existing sponsor-managed fund or vehicle.  

These transactions provide a liquidity option for LPs while securing more time and growth capital for the GP to optimize the ultimate exit of such asset(s). With recent challenges in more traditional exit channels like M&A sale or IPO, the CV solution continues to grow in prevalence and use for GPs to provide liquidity to their investors. 

Other financings in the secondary market that have been popular are preferred equity or NAV loans (loans secured against the current assets of a fund). These provide alternative access to capital especially when access to traditional capital markets is constrained or less attractive. They can be used to reinvest in or support a portfolio of assets, return capital to LPs (akin to a dividend), or even bridge a portion of the capital needed to close a CV transaction. Harris Williams’ Private Capital Advisory group, a PNC subsidiary, has extensive experience in GP-led secondary solutions, including the ones described above, and prides itself on being a high-touch advisor of choice known for its execution, positioning and structuring expertise.


PNC and its subsidiaries have a long-standing track record of achievement and a full arsenal of financial products and services to help sponsors and their portfolio companies throughout each fund  life cycle phase, including the solutions referenced herein. 

Key Trends in Private Equity