Alt Investments
Private Capital AuM To Double By 2027, Reaching $18.3 Trillion
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The research firm predicts how sectors such as venture capital, private debt and hedge funds will fare over the next few years. All of them have been important investment holdings for wealth managers, and access to HNW individuals is also growing.
The amount of money invested in private capital – such as venture
capital, private equity and debt – is expected to double by 2027
reaching $18.3 trillion as a hunger for returns stimulates
demand, according to figures from research firm Preqin.
Although the growth rate will slow somewhat after the hot pace of
recent years, decelerating to 11.9 per cent in the period of 2021
to 2027 from 14.9 per cent in the preceding six-year period,
investor demand remains “strong,” the report said.
As regularly noted by this news service, the ability of private,
less liquid investments to generate returns has drawn capital
after more than a decade of ultra-low interest rates hit yields
in stocks and government bonds. Meanwhile, more firms are staying
private, or taking longer to list on the stock market, creating a
supply-side need for private capital investment. Some of the most
important investors in this space are wealth managers, private
banks and family offices, which tend to have relatively long
investment time horizons.
Preqin noted that when hedge funds are included in the mix,
assets under management in the whole “alternative investment”
universe are expected to reach $23.3 trillion by the end of 2027,
up from $13.7 trillion at the end of 2021 (growth of 70.7 per
cent).
High net worth individuals are becoming more involved in the
private capital space, as innovations, and moves by regulators to
widen access, make it easier for HNW investors to get in
on the act. Firm such as iCapital, CAIS, Moonfare and ADDX,
to name just four, are part of a drive by firms to make it easier
to tap into the sector.
“Private markets have been in a super cycle over the past decade.
Due to lower risk adjusted returns in most traditional public
asset classes, investors have had to look further afield to find
alternative sources of return,” Christoph Knaack, CEO of Preqin,
said.
“However, the deterioration of the macroeconomic climate over the
past year, from rising inflation and interest rates to
geopolitical threats, means investors are now operating in a more
challenging environment.”
“Against this backdrop, we expect to see more sustained growth in
the asset classes which have historically performed well in more
volatile markets, and which are able to provide inflation
protection, such as infrastructure, natural resources, and
private debt,” he said.
Findings
Venture capital leads the way as the fastest-growing asset class:
VC is forecast to rise in AuM terms by 19.1 per cent per annum,
from $1.46 trillion at the end of 2021 to $4.17 trillion by
2027), followed by infrastructure (13.3 per cent), and private
debt (10.8 per cent). North America will be the main source for
VC funding – annual fundraising in the region is expected to grow
from $118 billion at the end of 2021 to $223 billion by the end
of 2027. Fundraising in Europe is also expected to grow to $30.5
billion by the end of 2027, up from $21.3 billion at the end
of 2021.
North America will lead the way in AuM growth: North America is
set to be the fastest growing region globally for private
capital, with AuM in the region expected to grow at a rate of
12.7 per cent per annum between 2021 and 2027.
Asia-Pacific markets are expected to see growth of 10.0 per cent
per annum, with AuM set to almost double to $2.08 trillion – up
from $1.17 trillion at the end of 2021. Growth in Europe (10.9
per cent) is expected to be slightly higher than Asia-Pacific,
and AuM in the region will reach $4.1 trillion by the end of
2027, up from $2.2 trillion at the end of 2021.
As for private debt, the space is expected to chalk up AuM growth
of 10.8 per cent per annum over the forecast period, Preqin
said.
The growth is mainly caused by the prevalence of floating rate
exposure in direct lending compared with traditional fixed income
products, building in some resiliency and inflation protection
for investors. With US dollar strength and increased interest
rates on offer, international investors are expected to “flock to
North America for private debt opportunities,” Preqin
said.
Infrastructure
The report said that infrastructure is forecasted to perform
strongly with a predicted 13.3 per cent of annual growth in AuM
(reaching $1.88 trillion of assets by 2027), closing the gap to
real estate in AuM terms – rising from 76 per cent of real estate
AuM in 2021 to 88 per cent in 2027. European infrastructure is
expected to lead the way, with AuM annual growth of 17.8 per
cent, reflecting the region’s growing need to invest in energy
generation capacity, reducing a reliance on Russian supplies.
Hedge funds are bottom of the AuM growth table, with 3.45 per
cent annual growth forecasted from H1 2022 to 2027.