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Private markets bounced back from pandemic-driven turbulence to reach new heights in 2021, according to a new report by McKinsey

Private Markets Rally to New Heights, a comprehensive analysis of the dynamics and performance of the private investing industry, encompassing private equity, real estate, debt, and infrastructure and natural resources, shows that fundraising was up by nearly 20 per cent year over year to reach a record of almost USD1.2 trillion. In addition, dealmakers were busier than ever, deploying more than USD3.5 trillion across asset classes, while assets under management (AUM) grew to an all-time high of USD9.8 trillion as of July 2021, up from USD7.4 trillion the year before.

Private equity continued to drive global growth in private markets. Fundraising rebounded across regions, and global totals fell just short of the pre-pandemic peak established in 2019. Assets under management reached USD6.3 trillion (again an all-time high), driven primarily by asset appreciation within portfolios. With a pooled IRR of 27 per cent for the first nine months of 2021, private equity was once again the highest-performing private markets asset class.
Across asset classes, investors broadly shifted from defensive to higher risk-return strategies. For example, this was evident in real estate, where investors rotated out of core and into opportunistic and value-add strategies, a departure from a long-running trend. Deal volume in multifamily and industrial real estate boomed, backed by changes in how people shop and where they live, but office and retail deal volume also recovered.
Private debt is the only asset class that grew fundraising every year since 2011, including through the pandemic. Amid a sea change in the asset class’s mandate, infrastructure and natural resources set all-time highs for fundraising and AUM, which broke the USD1 trillion mark for the first time.
This year’s report also examines how private markets firms are evolving. GPs and LPs continued to formalise and expand environmental, social, and governance (ESG) commitments in 2021: over half of total fundraising flowed to firms with formal ESG policies. While more progress is needed, US private equity firms have increased the percentage of ethnically diverse talent and women holding junior-level roles, and have made some strides in female promotion and retention. Leading firms continue to make major investments in digital and analytics capabilities to capture economies of scale as they grow.
At the beginning of 2022, a new set of risks with the potential to undermine growth and performance has emerged. The Russian government’s invasion of Ukraine, higher inflation and interest rates, and supply chain and labor challenges are already driving volatility three months into the new year.

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