The annual rate of AUM growth across all private capital asset classes will slow to 11.9% between 2021 and 2027, from 14.9% between 2015 and 2021, according to a latest report by Preqin.
- Rate of AUM growth across all private capital asset classes will slow up to 2027
- Private equity ‘sweet spot’ likely over and more challenging fundraising environment expected
- Infrastructure and private debt could become the top performers in the next five years
The annual rate of AUM growth across all private capital asset classes will slow to 11.9% between 2021 and 2027, from 14.9% between 2015 and 2021, according to a latest report by Preqin.
The slowdown in growth will feed into a more challenging fundraising environment. In the short-term, the report expects a 21.5% decline in private equity fundraising in 2022 before an additional 2.7% fall in 2023. The situation is further dampened as some LPs’ private equity allocation gets closer to their long-term target as public equity and fixed income markets have declined.
Regionally, AUM growth in private equity in APAC is looking to slowdown the most – from 15.6% to 10%. Europe is expected to slow from 14.2% to 10.9%, while America is likely to be the least impacted, with AUM growth slowing from 15.3% per year between 2015 and 2021 to 12.7% between 2021 and 2027.
The AUM growth for venture capital is expected to fall significantly – from 30.9% per year between 2018 and 2021 to 19.1% per year between 2021 and 2027, although still being the asset class with the strongest growth, sustaining a 19.1% forecasted CAGR from 2021 to 2027.
The Preqin report said the sharp fall in public market valuations is already hitting venture capital activity and performance, but near-record dry powder may offer a cushion and provide opportunities to deploy capital at attractive valuations.
The report also expects macroeconomic headwinds, including inflationary pressure, supply chain disruption and the war in Ukraine, to weigh on private equity performance over the next five years.
The AUM CAGR of private equity is looking to slow to 13.5% from 2021 to 2027, compared with 15.4% per year in the 2015 to 2021 period.
“The tailwinds that have helped private equity outperform public equity markets are being eroded,” the report said. “The sweet spot that private equity markets have enjoyed over the last few years is likely over. Our model suggests a clear slowdown in activity across the board, while mounting macroeconomic concerns suggest potential additional downside risk.”
Infrastructure and private debt could become the top performers in the next five years, with the former driven by investors seeking exposure to stable cash flows or inflation-protected asset, and the latter supported by those switching from traditional fixed income assets.
Preqin forecasts that private debt’s AUM CAGR will drop from 9.37% in the period of 2015-2021 to 8.41% for the period between 2021-2027, while that of infrastructure will keep mostly flat at 11.6% between 2021-2027.
Key Takeaway | Recessionary pressure would be having impact across asset classes in private capital. VC, infrastructure and private debt on path to be the top performers for the next five years.
