Despite two years of uncertainty brought about by the pandemic, a few things have remained relatively constant: a low interest rate environment; buoyant demand for private assets; and intense fundraising activity. During 2021, the latter moved to a record high.
Despite two years of uncertainty brought about by the pandemic, a few things have remained relatively constant: a low interest rate environment; buoyant demand for private assets; and intense fundraising activity. During 2021, the latter moved to a record high.
The private equity market – in terms of AUM and number of private equity investors – has tripled in size over the last decade.
There are no signs – yet – of this growth halting in 2022. Fund managers have been quick to ride recent waves of investor interest in healthcare and technology-focused fund strategies, accelerated by economic lockdowns, but competition among these GPs for capital flows, assets and talent is now red hot.
Prudent managers see a tipping point this year in areas such as ESG and alternative data where competitive advantage can be found. Others are doubling down on increased specialisation, platform extensions and regional expansion.
Private equity will no doubt continue to be a highly sought-after asset class by the end of this year, but much of its future growth is expected to come from emerging areas, such as growth equity and impact investment.
How this growth plays out will be determined by the greatest trend currently shaping the private equity fundraising market: the dominance of established mega-funds.
Average fund size continues to rise and the pace of new funds entering the market is accelerating, but the number of funds closing is down from its peak in 2017. For LPs, it is a busy and crowded market, and many do not have the time or resources to consider allocations to new or first-time managers.
Will this limit innovation or have other unforeseen consequences in the long-term?
High deployment rates suggests that dry powder is not a problem but the middle market and some of the newer sector specialists will have to demonstrate even stronger returns to compete with larger managers returning to market. The race continues.
Private Equity Wire would like to thank everyone who contributed their valuable insights to this year’s report.
Colin Leopold
Head of Research & Insight, Global Fund Media
