The Future of Private Equity: Five Predictions for the Next Decade
In the 10 years since Rede Partners was founded, there has been considerable change in the world at large, as well as in the private markets space.
PE has enjoyed remarkable growth in the past decade – with assets under management rising from $1.7trn in 2010 to $4.4trn in 2020. Likewise, the secondaries market has grown roughly as much as the NASDAQ Composite, at about 4x where it stood in 2011. At the same time, there has been major ‘churn’ in PE, with 90% of the firms in the 2020 HEC -Dow Jones PE Performance Ranking being new entrants compared with 2011 – meaning that only two firms maintained their positions.
For this report, we challenged ourselves to make some fairly bold – or at least less obvious – predictions for what the private markets will look like in 2031. Of course, looking back to 2011, we would have been hard pressed to predict Brexit, the Trump Presidency, or the global pandemic – so any predictions will always be tempered by the knowledge that new trends can arrive from left-field at any time.
As such, we’ve identified what we feel will be five key trends in the years ahead:
1. New PE models and a huge growth in illiquids
Private markets will undergo a ‘great rotation’ from liquids to illiquids, and a change in PE products that will start to fill the gaps that currently exist in the risk/return spectrum.
2. Specialisation will create an impenetrable ‘moat’ around expertise
GPs will be focused, as never before, on building sustainable, hard-to-replicate competitive advantages that will help them consolidate their position and fend off newcomers.
3. The end of the 10-year blind pool
The growth of GP-related M&A will change the longstanding PE model, but not in ways that most people within the industry might expect.
4. Carbon targets will become a focal point across the corporate landscape
The shift towards decarbonisation will be felt across all business sectors, with company valuations and PE performance directly impacted by approaches towards environmental issues.
5. Increased government oversight will herald the end of privacy in private markets
PE firms will be in the spotlight of public opinion more than ever before, which will lead to more government oversight and the loss of privacy – potentially changing some of PE’s unique characteristics.