Since the last economic downturn, private equity (PE) has seen record-setting growth. Indeed, the industry’s assets under management have grown nearly 80% over the last decade, reaching roughly US$2.7t. The sector’s role in the economy continues to grow. PE firms now own stakes in more than 13,000 companies across the globe. They employ more than 20 million people, and for each additional million dollars they invest, they create an additional 10 jobs.(1)
With the days of financial engineering of investments gone by, and a growing need for value creation through transformative growth strategies, PE is now in the unique position to fuel positive equity. The EY Global PE Watch 2018 explores the possibilities and reveals what boards across industries need to know to position their companies for growth.
Despite the rising prominence of PE, there is significant room for even more growth. While the gap is narrowing, the value of PE portfolio companies is estimated to be equivalent to just 3% of the US$81t in publicly traded shareholder value.
Meanwhile, the universe of public companies is shrinking. In the US, for example, the number of listed companies has declined by 50% over the last 20 years. Thus, the opportunities for private companies to remain private is growing dramatically, driven in large part by widespread experimentation and innovation within private capital.
There are still a number of critical similarities between the PE industry of a decade ago and now – most notably, PE’s “secret sauce,” its model of concentrated of ownership and the alignment of stakeholder interests. However, the industry has transformed in other important ways that can represent significant opportunities for savvy companies and their boards.
Our report reveals three ways PE firms are positioning themselves for the future, by increasing their ability to fund companies at all maturity stages, focusing on new kinds of partnerships and improving the attractiveness of companies leaving PE ownership.
1. Josh Cox and Bronwyn Bailey, Private Equity Investment and Local Employment Growth: A County-Level Analysis, 2016