The Numerator Effect

The denominator effect has increased the percentage of private equity and VC allocations among endowments and pension funds, but there is a numerator effect coming very soon:

But a second factor, Breakingviews says, could be a tightening of
accounting standards as they apply to illiquid assets like private
equity portfolio companies.
The accounting-related culprit is a rule known as FAS 157.

With a broad economic downturn’s effect on portfolio companies coupled
with close scrutiny of valuations from auditors, the end-year reports
from some private equity firms could turn out to be grim reading,
Breakingviews says.

Limited partners are hurting, and that is bad for venture capital and private equity.  The other thing going on is that limited partners are fighting factors that may increase their PE allocation in the upcoming years– private equity firms see blood on the streets and they could do very well with investments in the upcoming year.