Alternative investment assets have continued to grow in the past few years, with private equity (PE) playing a significant part in its growth. Its popularity amongst high-net-worth individuals, family offices and institutional investors drives its traction in the industry.
In this blog, we lay out some of the trends and insights regarding the private equity industry for 2023 and how a private equity administrator can help a manager navigate the changing market.
Trends in the PE market
Increase in market size
The private equity market has seen an increase in global market size over the years. Following the 2008 recession, private equity assets recovered from the challenges of fewer attractive investments and a drop in capital.
According to a report from Preqin, the recent decades have seen a global shift towards private equity assets in comparison to the public markets. Particularly in Asia, there is a rapid rise of alternative assets. In 2020, the region’s share of the global private capital increased to 15 per cent, from only 8 per cent in 2016.
PE has mostly exceeded other private markets asset classes such as real estate, natural resources, private debt and infrastructure, making it the highest-performing private asset class for the fifth consecutive year, according to Burgiss.
Sustainability and diversity
Sustainability in PE investments is now a weighing factor for investors. With this, PE firms and managers are devising strategies to address sustainability issues targeting concerns on risk mitigation and management and future-proofing of PE investments.
Following this, the PE industry has moved towards more socially acceptable practices over the preceding decade. Private equity firms and managers have made conscious efforts towards the allocation of capital on environmental, social and governance (ESG) dedicated funds, leading to the improvement of the public’s sentiments towards PE, including:
- Investments in socially responsible and accountable companies
- Undertaking deals that create value for the shareholders
- A shift of operational structures that foster employee retention and job creation
Aside from this, diversity, especially in areas of gender balance, is a relevant concern in the private equity and venture capital funds industry. The so-called “gender-smart investing” is seen to create an avenue for value-creation and an added opportunity to address risks in areas such as the gender pay gap and other inequities in the industry.
According to a study by the International Finance Corporation, RockCreek and Oliver Wyman, limited partners (LPs) perceive gender diversity as an essential consideration. Though there are still gaps between the coordination of actions from both limited and general partners to address this concern, progress to move forward has been initially established. According to the study, PE firms that have integrated gender diversity into their organisations have seen valuable outcomes, including attracting diverse companies and improving internal processes and investment decisions.
Pandemic-stricken PE investments
The investment market was no exception to the effects brought by the COVID-19 pandemic. However, PEs weathered high levels of deals, exit values and fundraising.
With the PE industry reaping the benefits of low-interest rates in previous years, government stimulus and market correction measures have further incentivized investment. Additionally, investments towards funds in the tech and healthcare sectors were seen to have significantly risen during the pandemic.
Nonetheless, following the recent developments in global economies, PE investments should still be closely monitored. As will be discussed in the next section, upward trends and stimulus in the private equity industry may be harder to come by in the following months. Having an expert private equity administrator will be beneficial in this setting.
A private equity administrator’s Insights for 2023
Considering these occurrences in the private equity industry, what are the trends that can be expected for 2023? Here are some of the outlooks for private equity in 2023.
Slowdown in fundraising
Fundraising in private equities may expect a slowdown, especially with an anticipated global recession. Moreover, higher interest rates are expected to continue in the next months with the central banks’ aggressive attempt to combat inflation. That said, a higher interest rate would mean private equity investors may move their funds elsewhere, creating a challenging environment for fundraising activities. On the other hand, investors may just focus on value-preserving strategies with their existing investments, rather than building more investments.
Continuance of sustainability efforts
The aforementioned trends towards sustainability and diversity would still be crucial areas to work towards in the coming years. The alternative investment industry will still see a continued demand from investors to integrate sustainable and ESG-focused strategies in their investments. Private equity managers will be more pressured to accommodate and incorporate ESG policies into their portfolios.
Bolder Group as a private equity administrator
As with any other investments, administering private equity funds involves hands-on experience and attention. The possible risks and challenges for investors should be duly expected and addressed for a successful fund performance in the next years.
With a fast-moving economy and investments market, private equity fund participants will greatly benefit from the professional services of fund administrators. Fund managers can focus on managing their private equity portfolios without having to take the burden of key activities to administer private equity assets.
As a global fund and private equity administrator, Bolder Group has an in-depth knowledge of crucial processes involved from investment to exit of private equity funds.
Get in touch with our team today to know more about our fund services.