Private capital markets will double by 2027, says Preqin

Private equity strategies are expected to nearly double assets under management over the next five years, according to data provider Preqin, even as the fast-growing industry adjusts to a tougher macroeconomic environment.

Private markets, encompassing private equity and private credit, have boomed over the past decade as investors seek yield at a time of fiscal stimulus and abundant liquidity. Despite this year’s market routs and challenging outlook — with borrowing costs soaring and economies slowing — demand for private capital “continues to show resilience,” Preqin said in a report Wednesday.

It expects the industry’s global assets under management to reach US$18.3 trillion by the end of 2027, up from US$9.3 trillion in 2021. Forecasts predict that the rate of Compound annual growth will slow to 11.9% in 2021-2027, from 14.9% in 2015-2021.

Demand remains strong as investors continue to seek alternative sources of yield in an uncertain economic environment, according to Preqin.

“We expect stronger growth in asset classes that have historically performed well in more volatile markets and are able to provide inflation protection, such as infrastructure, natural resources and private debt,” he said. said Christoph Knaack, CEO of Preqin. .

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Preqin expects a 21.5% drop in global private equity fundraising in 2022 after a bumper performance of US$561 billion in 2021. Private debt is also expected to grow at a slower pace, but reach an all-time high of US$2.3 trillion in assets under management by the end of 2027.

Private debt investors have won a string of high-profile deals this year as investment banks turn cautious while markets for high-yield and leveraged loans remain fragile. Deals for companies such as Ping Identity and Corden Pharma have turned to direct lenders for financing.

North America is expected to lead the way in terms of private capital growth, at a rate of 12.7% per year between 2021 and 2027, Preqin noted. Asia-Pacific and Europe follow with annual increases of 10% and 10.9%, respectively.

Retail investors should be a driver for private capital, as they are still underallocated in the asset class, according to Preqin. Large private credit fund managers, including Blackstone Inc. and Apollo Global Management Inc., have lent to the retail market and offer products that target high net worth individuals.

“The retail fundraising campaign comes as a growing proportion of institutional investors are closing in on their long-term strategic asset allocations to private capital,” the report said. “Regulators in the United States and Europe have generally been proactive in facilitating the increased demand from retail investors in private markets.”