Conference Presentation, Panel, Fireside Chat
Global Private Equity Outlook
- The industry is projected to continue a "golden age" despite predictions that deal volume and velocity may fail to sustain current all-time high levels of dry powder.
- The number of private equity firms is expected to rise from all-time highs, with firms adding approximately one country to their operating footprint annually before expansion slows.
- Protectionist populist movements in the U.S. and globally pose a risk to trade flows and multinational advantages, though regulatory hostility toward the sector in Congress is believed to have abated over the last five to ten years.
- U.S. government rules regarding private equity are anticipated to remain largely unchanged across administrations, allowing firms to reasonably perform in emerging markets despite potential down cycles.
- Emerging markets represent a disparity where private equity capital accounts for only 17% of the market against 55% of world GDP, though dollar-based investors face a risk of inverse correlation between GDP growth and returns over a five-year period due to inflation.
- Investment strategy in emerging markets is expected to involve withdrawing capital when markets are up and avoiding entry when markets are down, despite the potential for currency devaluation to create asset discounts during economic downturns.
- Significant capital inflows are predicted over the next decade from the 401k and IRA market, a surge in retail investors via feeder funds, and sovereign wealth funds potentially increasing their capital share to nearly 20%.
- Investors are expected to favor longer-term holds over the traditional three to four-year return cycle, driving a need for firms to quickly meet demand for long-hold, low-returning assets.
- The U.S. and the Americas will likely dominate large private equity firm business for at least the next 10 years, while scale becomes increasingly critical for securing co-investors in larger deals.
- Operating platforms capable of transforming businesses are forecasted to generate returns 600 basis points higher, with a disruptor featuring a superior business model expected to emerge within the next five to ten years.
- The "shadow market," including sovereign wealth funds and SMAs, is projected to grow to roughly a third of the market soon, with these entities potentially evolving into direct competitors by building large-scale organizations.
- Persistently low interest rates in Japan, Germany, and the UK are expected to create massive capital pools requiring investment, while publicly traded private equity firms are viewed as current bargains due to low stock prices.
- Firms will continue to evolve their business models over many years to fit new market realities, with no single right model for the industry, and must hire highly capable personnel to avoid bureaucratic stagnation.
- Macroeconomic events causing uncontrollable economic slowdowns represent the primary potential risk, even as industry returns are expected to drift slightly lower while remaining attractive enough to draw continued capital.