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Private capital AUM set to double to over $18tn in next five years

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Global private capital assets under management is expected to almost double to $18.3tn by the end of 2027 as investors continue to seek alternative sources of returns in an uncertain economic environment.

Research from Preqin revealed the impressive rise, a huge increase on the $9.3tn recorded at the end of 2021.

The firm’s Future of Alternatives 2027 report said that while private capital allocations have increasingly become a core part of institutional investor portfolios, high net worth investors have for the most part remained allocated to traditional investments.

It said, “A lack of products that are tailored for retail participation has been one of the key barriers, but that is beginning to change, as the industry innovates, and the regulatory environment evolves.

“Preqin expects growing retail investor interest in private investments – especially among high-net-worth investors – to be one of the key drivers of private markets growth in the future, particularly as a higher portion of institutional investors are approaching their current target allocation to alternative assets and may be forced to revise their target based on market conditions.”

Venture capital is forecast to be the fastest growing asset class in the next few years, at 19.1% growth per year – pushing AUM from $1.46tn at the end of 2021 to $4.17tn by 2027.

That is followed by infrastructure (13.3%) and private debt (10.8%). North America will be the main driver for VC funding, Preqin said, with annual fundraising in the region expected to grow from $118bn at the end of 2021 to $223bn by the end of 2027.

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 year between 2021 and 2027.

APAC markets are expected to see growth of 10% per year, with AUM set to almost double to $2.08tn – up from $1.17tn at the end of 2021.

Preqin CEO Christoph Knaack said, “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.

“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.

“Continued demand for these asset classes, coupled with a growth of retail investor interest in building allocations to alternatives, will drive private capital AUM to new heights over the next five years.”

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