Private Capital Trends Status & Road ahead

Transcription

Hello, and welcome back. Welcome back to our update on private equity and venture capital trends. I just returned from conversations with institutional investors in Switzerland. And I thought I should share a few of the conversation points that came up in those talks. So one of the question that was asked is time to allocate to private equity. So let me basically walk you through a couple of data points, and then very quickly go beyond the data. So question right now we saw in the earlier talk is the industry continues to grow has raised tremendous amounts of capital over the last 20 years, naturally, dry powder is increased the money that's sitting on the sidelines waiting to be deployed, and that obviously, the activity as well as dry powder in the number of private equity firms increasing has basically pushed valuations up. Nevertheless, As we ascend in early 2023, valuations are coming off and will continue to dis to decline until summer. Now, what is happening in 2021 deal value crossed 1 trillion US dollars for the first time in the history of private capital. As we are looking at 2022, the year obviously had to start off with a softening. So we saw transaction value dropped to 700 billion, but also a couple of interesting changes 40% of the deals done in leveraged buyouts turned out to be take privates, meaning the, the the action were leveraged buyout funds, take public listed companies and take them private, to improve them to potentially increase their value again, that is kind of unusual 40% Usually that number is rather around 20%. When we look over the years, also 60% of the transactions were add ons, that number usually hovers rather below 50% 20 to 23 activities started to continue to decline. So second half of 2022 and all the way into 2023. So clearly, there was very cautious activity, partly due to macro, but partly also due to the obviously on the sideline requests from LPs to take deployment or capital calls a bit easy. Obviously, the LPs, feeling the heat as well or still from the development on the public market side, and the denominator effect is coming in as well, where due to drops in public market, the percentage allocation of total AUM to private equity is all of a sudden potentially high or higher than target. Of course, inflationary pressures plus rising interest rates didn't help. The question, obviously, that always comes up is will capital continue to flow into private markets? As we discussed in the past, we've seen fewer companies listed on public markets. So obviously any global investor who has a mandate to allocate globally has to ask himself, does a public market portfolio truly reflect what is happening on the macro economic side? Or do we need private market allocations to ensure that our investment exposure will take advantage of any potential upward movement in those in those respective countries? And clearly when we come to emerging markets, without private equity investing without private market investing, it is really hard to argue because more often than not the public markets are just not representative. They just don't reflect what's going on on the ground. Now, LPs, that have clearly said that they are still looking for managers to identify half potentially identified managers and are to some extent excited about the opportunity to enter the market at a lower valuation until right now in May 23. We have not seen this playing out really not. And quite a few have basically allocated to private equity, but again, are waiting on the sidelines to decide what to do later in the year. You will recall that a few years ago we had a an analysis done by State Street that basically look Historically, over 30 years back and explored is private equity really still outperforming public markets. And as you can see, when you look at a slide from right, far right, which is 30 years ago, where the green bar us buyout funds, clearly outperformed public markets, the s&p 500 public market equivalent, going all the way to the left, you can see that the delta between the dark green bar and the light grey bar is clearly decreasing, and potentially even non existent. Now, whilst this is certainly something to consider and to observe, and to continue to explore going forward, we got to be aware that this is really an American story.

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