In this episode of the NextWave Private Equity Podcast, Andres Saenz, EY Global Private Equity Leader, joins Winna Brown to reflect on the private equity industry’s evolution and explore its outlook over the next 3-5 years.
Private equity has expanded and evolved dramatically over the past 25 years. An investor mix traditionally dominated by pensions, foundations and endowments is now seeing the entrance of sovereign wealth funds, high net worth individuals and family offices. Record levels of fundraising have caused investment multiples to rise, necessitating a focus on diversification and value creation that has resulted in the expansion of the biggest players into fully diversified alternative asset managers.
While cost-cutting remains an important part of the playbook, technology has become a key enabler of value creation. Digitization is redefining industries, sectors and functions and challenging traditional PE business models, and investment in value creation technologies is more important than ever to drive returns in a high-priced environment.
A related aspect of technology value creation is talent. A larger and more diverse group of operating resources are not only involved earlier in the deal cycle but are increasingly specialized. PE is a people-based business, and talent is a critical differentiator in today’s competitive environment, both at the fund and portfolio level. Diversity will continue to be both a challenge and critical focus area for PE over the coming years as these trends continue.
A global movement towards corporate responsibility has manifested in PE’s focus on ESG and impact investing, with investors increasingly demanding not only monetary returns, but transparency, accountability and societal impact. Investments in energy, healthcare, technology and consumer exemplify the shifting focus towards broad-reaching returns for a more inclusive and value-driven investor mix.
Top three focus areas in PE over the next three to five years:
- A “retailization” of private equity will see continued investment from HNW investors, and ultimately the largely untapped 401k and defined contribution market into private equity
- Continued expansion into ancillary asset classes such as growth capital and private credit
- Increased emphasis on ESG and impact investing and a greater focus on creating, measuring, communicating and being transparent about the value being created in these investments
Top four values of leading PE funds over the next three to five years:
- Purpose and transparency
- Data and technology
- Differentiated investment strategies
- Talent diversification
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Duration 18m 26s
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EY Global Reshaping Results, Turnaround and Restructuring Strategy and Transactions Private Equity Leader