Private equity firms now manage commitments of nearly US$3.4t globally, up from less than US$500b in 2000, and in a significant shift new capital from private markets has surpassed for capital raised in public markets for the first time ever.
This shift and its impact on the dynamics of the funding landscape is analyzed in the new research paper, A new equilibrium: PE‘s growing role in capital formation and the critical implications for investors, a joint collaboration between EY and the Institute for Private Capital.
Greg Brown, Professor of Finance, UNC Kenan Institute of Private Enterprise, says:
“In today’s capital markets, there is a measure of stagnation in the public markets, where listings are increasingly dominated by larger, more mature companies. At the same time, the last decade has seen widespread experimentation with a wide range of new private capital vehicles and investment models that are able to provide funding to a broader array of companies than ever before, at nearly all stages of their life cycles.”
Outlook for private capital
The research highlights the evolution of PE funds in the last two decades, from commingled buyout and venture funds, and their innovation into a wide array of vehicles that have opened the investible universe, to entirely new types of businesses. As a result of the changing dynamics, the report raises questions and analyses a number of important drivers of this shift including: the growing investible universe for private equity, current and new sources of capital, new segments of growth and impacts associated with the shift in methods of funding, and the factors driving the decline in number of public companies.
The report finds there is still room for growth in the traditional markets of US and Europe. Additionally, emerging markets represent a high potential growth opportunity, as the penetration levels of private capital are much lower. Further growth opportunities lie in areas that have traditionally been outside the purview of PE funds, such as private credit and real assets.
Andres Saenz, EY Global Private Equity Leader, says:
“For a wide range of capital markets stakeholders, the implications are significant, as more and more of our economic growth occurs within the realm of private capital. The last 20 years has seen the industry build proven models for investment and innovate a wide array of products that appeal to a growing number of investors. In many ways, the next 20 years will be about how PE firms manage the consequences of their success, as they expand into new domains.”
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About the Kenan Institute of Private Enterprise at UNC Kenan-Flagler Business School
The Frank Hawkins Kenan Institute of Private Enterprise develops and promotes innovative, market-based solutions to vital economic issues. With the belief that private enterprise is the cornerstone of a prosperous and free society, the institute fosters the entrepreneurial spirit to stimulate economic prosperity and improve the lives of people in North Carolina, across the country and around the world. Learn more at kenaninstitute.unc.edu.
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