Despite a recent slowdown in fundraising, more than $30 trillion is forecast to be invested in private markets globally by 2030, as this sector continues to expand.
In a keynote address at the Corporate Adviser’s summit, BlackRock director Cameron Joyce shared research and data on private markets, as DC schemes increasingly look to include these assets within default strategies.
BlackRock completed its acquisition of Preqin earlier this year, the leading provider of analytics for the alternative assets and private markets industry. Joyce outlined major trends across the industry, not only in terms of overall growth, but of individual asset classes, from private equity to venture capital, infrastructure and private debt.
With DC schemes targeting significant private market allocations Joyce said there was “evidence these asset classes have continued to deliver excess returns”.
“There appears to be persistent headwinds in last few years, and if anything these may be starting to dissipate over time.” He specifically cited the the cost of financing reducing slightly and the positive impact of AI revolution – drawing parallels with the previous dotcom boom.
Joyce said: “It is hard to know exactly where the value creation will be captured this time round, but we know that companies are staying private for longer.” He added that many companies developing this technology as well as innovating with it are looking to private equity and venture capital funding. This seems like a “compelling argument to consider investing in private markets,” he said.
Joyce also said there remained significant opportunities in UK private markets, although at present it may be difficult for schemes looking to deploy “big ticket size investments”.
Joyce gave an overview of growth in private markets worldwide over the past 10 years. He pointed out that while there had been significant growth pre-pandemic, there has been a marked slowdown since then due to rising interest rates affecting financing and fundraising. This he said had particularly hit the venture capital market.
However Joyce said while the higher interest-rate environment was still having an impact, conditions were improving particularly for private equity, and there was a more positive outlook for investors looking to invest in new vintage private equity and venture capital investments.
The research also highlighted the steady demand for private credit and infrastructure investments, both of which had continued to perform throughout the investment cycle. He added that there was strong demand from wealth managers and pension funds for these particular private market assets, helped by the emergence of semi-liquid vehicles such as LTAF and ELTIFS (the European version of LTAFs).
Preqin’s research also highlighted current investor concerns when it comes to private markets. The biggest concern in recent years has been the exit environment, with deal activity slowing due to a lack of liquidity.
Joyce explained that a key measure of investor returns — the distribution to paid-in capital (or DPI) — is roughly the same as it was pre-pandemic. This DPI figure measures much capital a private markets vehicle has returned to investors compared with how much they initially have initially paid into this fund. However he added that the while the value of exits is broadly the same as it was five years ago, the market has grown considerably since then — so as a percentage of the volume of investment this metric is down.
The research also showed that other major concerns include asset valuations, although Joyce said the proportion of investors citing this had come down in recent years. In contrast there was a sharp increase in the number of investors who said they were concerned about geopolitical tensions and the impact this might of have private market valuations.
Joyce added that the research conducted among institutional investors suggested that the 60/40 model for long-term portfolio management — where managers have had a 60 per cent exposure to equities and 40 per cent fixed income — “was already dead”.
Data collected by Preqin among institutional investors suggested they have already moved to a 50, 30, 20 allocation — with almost 20 per cent exposure to private markets. He added that that private market allocation were closer to 15 per cent in 2019 but were no just under 20 per cent.
