U private capital the industry has grown to more than $ 7 billion thanks to demand for higher-return but costly and opaque return strategies, spurring the likes of Schroders and JPMorgan to launch new divisions and send others to the bow for acquisition.
Although still driven by the traditional asset management industry – which invests primarily in the mainstream, public capital and bond markets – explosive growth in sectors such as private equity has raised the size of the economy. general private capital industry to $ 7.4 billion by the end of 2020, according to Morgan Stanley. The bank expects it to reach $ 13 billion by 2025.
Private capital is now available they grow so quickly as a low-cost, index-tracking passive investment, encouraging many large asset management groups to expand their operations in the area to counter profit pressures on traditional investment routes.
Schroders, the largest listed investment group in the UK, earlier this week announced it would consolidate all its private equity vehicles into a new entity called Schroders Capital. At an investor event, it also promised to double the size of these assets to £ 86 billion by the end of 2025, Barclays said.
“Platforms will be key to what I call‘ industrialization ’of private markets,” said Georg Wunderlin, world head of Schroders Capital. “We may be 15 years behind the public markets, but the industry is maturing in a similar way.”
JPMorgan Asset Management also created a new division called this week JPMorgan Private Capital to close their operations in this area, while other investment groups have said they are looking for acquisitions to start their work.
“It’s something we value,” Robert Sharps, chairman of T Rowe Price and chief investment officer, said at the company’s annual shareholders ’meeting last month. “The trend toward a greater allocation of illicit strategies and private assets among many of our clients is not something that is lost on us.”
Industry insiders say the biggest drivers of the appetite for private equity investments are the environment at low interest rates and high stock market valuations, which have diminished the prospects for future returns from those classes of goods. At the same time, private markets are less volatile since they are traded only rarely and valuations can be more subjective, an opacity that actually increases their luster for many investors.
For many investment groups, under pressure from the explosive popularity of passive and bond funds, appetite is a huge advantage, analysts Morgan Stanley noted in a report Thursday.
“For traditional asset managers, rights will be relatively more difficult to defend given the commodification of the industry and the challenges of existing margins,” the report said. “Consequently, we expect traditional asset managers to make more use of these levers to defend existing income pools while leaning towards alternatives with their fatter pool of taxes and private markets with their structural growth. higher “.
Private patrimony it still contains the largest piece of the private equity universe, with assets of more than $ 3tn, but grows slower than areas such as private credit, funds that evade banks and make tailor-made loans directly to companies, and infrastructure.
However, the fastest growing angle is the so-called “growth equity”, Which typically involves investments in companies that are too large to exploit traditional venture capital firms, but that are not willing to go public or sell fully to private equity.
Growth equity accounted for 14% of the private equity industry at the end of last year, up from 5% in 2005, according to Morgan Stanley. JPMorgan Asset Management said earlier this week that it had hired Christopher Dawe from Goldman Sachs to lead a new capital investment arm, as part of its broader push into private equity.
“Growth equity and private debt are among the fastest growing asset classes in the alternative industry, with strong demand from individual and institutional investors to look beyond markets. public, ”said Brian Carlin, executive director of the newly created JPMorgan Private Capital. in a statement.
U private capital the industry has accumulated nearly 2.5 tons of “dry dust” – money pledged into funds by investors but not even deployed. This underscored fierce competition for attractive deals, and led some analysts to warn that yields may not remain as fluctuating as they have historically been.