megatrends
A shifting paradigm for private markets
The New Dynamics of Private Markets
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Private markets have provided farmers, entrepreneurs, corporate tycoons and property developers with access to capital for centuries. But the current scale, growth and complexity of private capital is truly unprecedented – and is radically altering the investment opportunities and challenges facing institutional investors.
$12 TRN
Private Market AUM, up from $2.6 trillion in 2006.
factors driving & transforming private markets
search for yield
Staying Private Longer
business models
onerous regulations
Risk-averse Banks
search for yield
business models
Risk-Averse banks
Staying Private Longer
onerous regulations
Banks and finance companies receding from riskier segments of lending
Regulatory changes and shifts in business models have led commercial banks to withdraw from certain parts of the lending market. This trend can be observed all over the world.
Banks are receding from corporate lending
Source: Federal Reserve
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The forces reshaping private markets are also shifting the ground beneath investors’ feet.”
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Private credit expands its reach
Private Equity Enters a New Phase
Portfolio Implications
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Increasingly onerous disclosures and regulations for public companies in developed markets
More firms in the US and Europe find the heightened requirements for disclosures and regular reporting to be expensive and unduly onerous. In response to a series of global accounting scandals in the early 2000s, several countries mandated greater disclosures and required reporting for public companies. The expense of complying with these new standards is not trivial. The total net additional cost for US companies to comply is over $20 billion annually, making public markets cost prohibitive for small and medium corporations.
Some business models are better suited for private markets
In a world where sustainability is gaining importance and tech disruption runs rampant, private markets may be better for some business models.
Private markets push into energy
Private fund investments in conventional energy, US$ Billion
Source: Pitchbook
Companies are staying private longer
Companies that are going public today do so at a much later stage. Over the past decade, the median age of companies at IPO more than doubled to 11 years.
Unicorns outpaced IPOs in 2021
Annual number of new unicorns and IPOs
Source: World Federation of Exchanges and Pitchbook
Note: Newly listed companies on NYSE and Nasdaq.
Investors seeking income and yield increase allocations to privates
Global institutional investors have significantly increased their exposure to private markets. This demand for private assets has been driven by a combination of factors:
Fewer public companies in the US; boom in Asian IPOs
Source: World Federation of Exchanges and Pitchbook
Note: Newly listed companies on NYSE and Nasdaq, excluding SPACs.
Source: World Federation of Exchanges
Note: Numbers include both domestic and foreign listings, excluding SPACs for the US.
Fewer public companies in the US; boom in Asian IPOs
Number of publicly listed companies
Source: Federal Reserve
Investors lean into private markets
Allocation to real estate and private equity by US pension plans
Firms that are light in physical assets and heavy in intangible assets and proprietary technology often garner higher valuations from private equity markets than public ones.
Investors and climate activists have been effective in pressuring global commercial banks, asset managers and public energy companies to divest completely from carbon-intensive industries.
This is driven largely by PE-backed companies, which are remaining in private markets for more stages of their development.
Many investors believe private markets offer embedded illiquidity premia.
They prefer the lower frequency at which private markets are marked or repriced to the volatility of public markets’ minute-to-minute pricing.
Institutional investors sought higher-yielding alternatives to corporate fixed-income portfolios, turning to real estate and infrastructure, for example, for their ability to generate strong income and stable cash flows.
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Investors lean into private markets
Allocation to real estate and private equity by US pension plans
Source: Federal Reserve
Source: Federal Reserve
Investors lean into private markets
Allocation to real estate and private equity by US pension plans