Conference Presentation, Panel
The Evolving Landscape of Private Markets | Middle East and Africa Summit 2024
Milken InstituteLaura Merlini, Lauren Goodwin, Klaus Hommels, Scott Spielvogel, David Steinbach, Andrew Weinberg
- Private markets are expected to encounter a floor on inflation and interest rates over the next three to five years driven by capital-intensive megatrends including digitization, AI, electrification, and supply chain re-globalization.
- Lower global interest rates are predicted to extend investment cycles in the US and Europe, improve borrower health, facilitate valuation bottoms, and create timing opportunities for debt and equity.
- Deal flow is anticipated to resume in private markets due to the interest rate cycle and sponsor pressure following structural evolution in the secondaries market.
- A "second renaissance" for private assets is underway, characterized by diverse investors seeking real economy value creation levers, liquidity, and product innovation.
- European real estate investment is currently experiencing a boom driven by higher rents from environmental efficiency and technology, with the US market projected to follow this trend throughout 2025.
- European defense requires rapid technology adoption due to the slow scaling of traditional heavy infrastructure, fostering an arms race for fast-development capabilities.
- US industrial service businesses may face growth constraints due to labor availability, potentially necessitating automation or robotics for entry-level roles.
- Middle-market businesses generally require foundational data frameworks before effectively utilizing AI tools, though some investment firms are already deploying generative AI for pricing and customer engagement.
- 2025 is forecasted to present volatility but likely yield relatively positive outcomes driven by business and customer spending stability.
- A $90 trillion wealth transfer serves as a persistent tailwind, highlighted by the fact that 60 percent of families currently lack succession plans.
- The middle market demonstrated resilience during the 2008-2010 Global Financial Crisis by adding 2 million jobs, contrasting with the 4 million jobs shed by large companies.
- Deal activity is expected to continue despite market volatility, supported by record activity levels reported in 2024.
- As global wealth doubles and the number of public companies shrinks from 8,000 to 4,000, investors are anticipated to create financial wrappers to capture private market demand.
- Non-institutional investors represent a market three times the size of institutional investors, growing at twice the rate, yet currently hold only about 4 percent in alternatives.
- A peaking working-age population in the West will necessitate a rethinking of the built environment to serve future communities.
- Liquidity concerns are expected to diminish for sophisticated investors due to the rise of secondary funds enabling mark-to-market capabilities at any moment.
- The distinction between public and private markets is predicted to disappear within five to ten years, particularly for high-end B2C brands like Airbnb and Revolut.
- Long-term trends in AI, data security, privacy, and the convergence of infrastructure and real estate are expected to offer a significant runway for growth.
- Increased competition in large and mega-cap private market opportunities will require investors to be highly selective regarding value creation phases.
- The European defense technology market is projected to grow from a current $70 billion market cap to $250–300 billion annually as 10 percent of defense budgets shift to technology.
- Space tech and drone technologies are anticipated to become dominant sectors in the coming years, including the deployment of defense systems in space to react to hypersonic weapons within a 12-minute reaction window.
- Collaborations regarding supply chains and unregulated technological changes are expected to help market participants anticipate shifts, such as those involving Mitsubishi.
- Non-core asset carve-outs by public entities are likely to accelerate, creating opportunities for private capital to grow these businesses as standalone entities.
- Implementing transformation, audit, risk, and compensation committees is expected to turn governance into a company asset within private markets.
- High levels of due diligence and fiduciary scrutiny in private transactions are expected to provide advantages over public transactions where average investors lack comparable information access.