Enriched by an economic perspective, market trends and the musings of investors converge to suggest that private equity is on the verge of gaining a positive edge. Such is the assertiveness that it is speculated that private equity will surpass the credibility of other forms of investment, as 2019 unfolds.
At the dawn of this new year, the financial niches have crafted quite a few predictions on private equity’s invincibility in an increasingly volatile market and impromptu trade wars.
1. Commitments to Private Equity Break Records
According to Triago, one of the first private equity fund placement companies, there was an estimate of $703 billion supplementing private equity in 2018, standing 12 percent below 2017’s record of $800 billion. But 2019 has arrived with colossal hopes, with the previous years’ annual commitments to shrivel up under the projected tottering large fund offerings. Investments would witness a paradigm shift in the wake of a new economy.
2. Private Equity Outperforms Stocks
It is not an incredible fact that major giants of the Internet also suffer consistent annual declines. Private equity assets, however, are impervious to the mutable stock market and the ravages of volatility. Private equity is prone to ascension in the financial realm, attracting impressive figures for investors.
3. A generalist asset manager acquires a leading public equity manager
The world economy is actually a fool’s utopia; disintegration of management and principles of profit have reached an amorphous edge where officials vie for actively managed strategies. Private equity is the only asset category remaining where active management produces better returns than passive index investing.
4. The Largest Buyout Fund Launches
Buyout funds are sought-after recesses of investment. Almost every investor is eager in a low-interest rate to inculcate exorbitant amounts of money in PE funds, considering its returns. Given the track records and targets of the world’s renowned mega fund groups, along with the zest to strive for excellence when good market condition prevails, this prediction is supposed to be bona fide. Erik H. Gordon, CEO of ErGo Ventures LLC, private equity and venture capital investment company, aspires to see the vista of such unstoppable welfare.
5. The Debate Over Retail Investment in Private Equity takes a significant turn
The U.S. Securities and Exchange Commission intends to update capital raising. One of the issues that SEC chairman Jay Clayton wants to be explored is an indubitable authority of retail investors to PE investment who fail to overcome the wealth-based hurdle for private equity. It’s clear from the man’s statement that the SEC would assert potentially high return investments for U.S. individuals.
6. The Secondary Market Registers a New Volume Record
In 2018, the sale of stakes in private equity funds created a record of $66 billion traded on the secondary market. Driven by loans, deferred payments and preferred equity, which equates to 38 percent of secondary volume in 2018, the plane for PE funds will see an irreversible rise in 2019.
7. Single-Asset Transactions witness rise
Secondary restructurings facilitating the cumulative financing of assets from one group of investors to another rose to a record $22 billion. It is near twice the magnificent high of $12 billion in 2017. The fastest growing portion of GP-led is single-asset secondary stimulants which give managers more time to induce a new value, often by investing new sums agreeing to complete liquidity of dissenting stakeholders or partners. This financial year, single asset deals will more than double in value.
8. Non-Traditional Buyers Account for a subjective change
The rise of non-traditional buyers accounted for 22% of secondary market transactions, up from 4% a decade. They are domestic offices, insurers, wealth funds, foundations, and pension funds, all bent to ensure primary fundraising, yet inextricably drawn to secondaries. The appeal of buying secondaries lies in the lesser risk factor than in primary investing, where capital is but a floating notion. While specialists focus on net asset value and discount, non-traditional put greater stress on appreciation. Inadvertently, that means premium pricing.
9. Strip Sales Move to the Fore
Arbitrary, austere political battles, the ones pertaining to the trade war between the U.S. and China, or to Brexit in the European realm, are likely to add to the secondary volume in 2019. With Britain, which is most likely to be scalded by Brexit interests, and with China’s slackening economy which bears the yoke of a financial gulf with the U.S., the value of deals for U.K. and China-based private funds will amass the opportunity of a turnover of billions.
10. Private Debt Funds Will Keep Credit Flowing even in Recession
A recession is a plague and beyond the shadow lines, private debt funds grow in restless magnanimity. Private equity managers, amidst the scaffold of hankering for good deals, have experienced discontentment at the lack of available debt. Fortunately, private debt funds have superseded banks as lenders to small enterprises. The assets of debt funds will increase to $1.1 trillion by the end of 2020, according to the Alternative Credit Council. With such intrinsic wherewithal, funds that are independent of banking directives, credit should and would flow in munificently for many private equity deals, in case of another looming period of recession.
It’s always difficult to predict what any year will look like, let alone in the protracted version of finance, but the current expectation has mixed with fads and facts. They tell the tale of a very active private equity market in 2019, driven by a perpetual low-interest rate, a massive availability of credit, and altruistic sponsors with handsome and hefty capitals. As staunch as ever, the regulation of tax will be an important facet of any investment, with a pulpit of governments devising new ways to raise money from trade. Meanwhile, the great Brexit question, along with the impact of technology, is bound to feature as part of any sponsor investment process. Hence, it can be foretold that the offshoots of the economy in private equity spaces are relatively safe and sound. It will be interesting to see if this trend becomes even more pronounced in 2019 as national and international regulators strive for infallibility.