in advance. (As of 20/01/2022). Dry powder inventorythe amount of capital available to GPs expressed as a multiple of annual deploymentspiked. According to Preqin data,[3]aggregate capitalraised by growth funds hit a new record of $136 billion, up by 60% on the previous year and exceeding the 5-year average of $114 billion. SPACs are playing a new role in the market dynamics, particularly in the U.S. Alternative investments typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors. Vikram Raju discusses five key findings from COP27. SCARCITY VALUE DRIVES SIGNIFICANT EXIT PREMIUMS He leads the Private Market team in shaping the strategic direction of the program, plays an active role in sourcing, monitoring of investments and serves on various underlying partnership advisory boards.s. 2021 was an exceptional year for exits: not only did the number of exits increase by 34% from 2020, but exit value also increased by 57%. Similarly, Australian software companies can be invested in at modest high single-digit/low double-digit EV/ EBITDAs and sold on to global strategics at premium double-digit EV/EBITDAs. Real estate deal volume declined 20 percent to $1.1 trillion, also the second-highest year on record. Amid a pullback in commitments, an outsized share of capital flowed to the largest funds, as investors re-upped with their existing managers but reduced backing smaller and new funds. [1]The study centered mostly on General Partners (GP) expectations around deal-making, fundraising, investment strategy, threats to the growth of portfolio companies, and the approach to Environmental, Social and Governance (ESG) factors. More than half of respondents (58%) highlighted it as the top risk factor to their portfolio. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Conclusion However, GPs who are willing and able to do the hard work have an additional lever to create value in companies and can potentially deliver alpha above their peers. Exit volume fell sharply, as sponsors chose to hold assets rather than sell into a declining-valuation environment. Healthcare follows IT as the second top industry, up to 47% from 43% in 2021, attracting more investors as the sectorcontinues to offer opportunities, especially in the Healthcare Technology industry. Closed-end fundraising declined 23 percent year over year. The continued momentum in 2022 was understandable, as debts current yield and senior position in the capital stack have long made it a haven in volatile periods. In closed-end funds, AUM reached a new peak, as it has every year since 2016, and managers raised the second-highest total on record, led by commitments to opportunistic vehicles. Although PE firms have been slow to join the digital technology revolution, many are catching up and implementing advanced data and analytics tools to identify new growth opportunities and remain competitive. By navigating unique cultural and geopolitical situations, arbitrage opportunities, and positioning companies well for exit, sophisticated GPs can capitalize on the inefficiencies of this market dynamic to buy low, sell high., Professionalization and Efficiency Improvement An Additional Source of Alpha. IPOs remain the first choice of exit methods among APAC investors (39%), and it is also increasingly attractive to LatAm investors, rising to 22% from only 4% last year. of the securities, and MSIMJ accepts such commission. Subscribe to Bain Insights, our monthly look at the critical issues facing global businesses. 43% were Private Equity Firms, 29% were Venture Capital firms and 28% were firms doing both Private Equity and Venture Capital investments. Retrieved from: https://www.ey.com/en_us/private-equity/pulse, [10] Key Trends that will drive the ESG agenda in 2022. All investment profits and losses belong to the clients; principal is not guaranteed. Sustainability-related deals (the "E") increased by 7 percent to nearly $200 billion, proving resistant to the deal-making headwinds that affected other asset classes. Morgan Stanley Investment Management (MSIM) views private equity in Asia as a potential bright spot for investors that offers the opportunity for outperformance, particularly at the current juncture. There are also pockets where capital supply/demand dynamics remain reasonable, resulting in attractive entry valuationse.g., in Thailand, there is a paucity of PE managers facilitating investment opportunities in high quality, growing companies. In PE, inventory jumped from a historically low 0.9 times at the end of 2021, following a year of record deal flow that outpaced fundraising, to 1.4 times, the highest ratio since 2013. The article was edited by Arshiya Khullar, an editor in the Gurugram office. Alternative investment funds are often unregulated, are not subject to the same regulatory requirements as mutual funds, and are not required to provide periodic pricing or valuation information to investors. 2 Preqin, data as of September 2022. Banking Essentials Newsletter: 5th May Edition, Enterprise 'shippers' seek help with supply chain digital transformation, have budget to spend, Private Markets 360 | Episode 3: Finding efficiency with technology (with Nick Fox of AEA Investors). document.write(new Date().getFullYear()); MorganStanley.Alle Rechte vorbehalten. Screening results include only M&A Exits not IPOs. The pattern in 2021 and 2022 was no different: despite rising US Treasury (UST) rates, cap rates decreased and values rose. (As of 7/10/2021). Sponsored by. Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. PE/VC investors are optimistic about 2022, with a majority betting on the current rapid pace of investment and fundraising to continue given the huge amount of available dry powder and the strong interest in the asset class. This is of particular concern for LatAm investors: 38% of respondents from the region say that convincing LPs about the right strategy and ability to deploy capital effectively is the biggest fundraising challenge their firm is facing. Catch new episodes by subscribing toDry PowderonApple Podcasts,Google Podcasts,Spotifyor wherever you may listen. [14], Private Equity firms gradually catching the digitalization train. It conducted a debut survey of firms in this sector, gathering professional insights and opinions on how they are likely to fare in 2022 in terms of fundraising, dry powder, regulations, ESG considerations, private equity operations, investing areas, strategies, outsourcing, valuations and exits. As overall GDP growth slows, efficiency improvement will become increasingly more important. Private equity funds continued to deliver returns outpacing any other asset class. Finally, macroeconomic forces, including higher energy prices and geopolitical conflict, have strengthened long-term investor interest in alternative energy sources and overall energy independence. After more than doubling year over year in 2021, multifamily deal volume fell 29 percent in 2022, accounting for nearly half of the asset classs overall decline in deal activity. Across the entire investment life cycle, from fundraising and asset selection to value creation and exit planning, ESG is on the minds of investors (Exhibit 11). McKinseys Private Markets Annual Review: 2017 to 2022. For illustrative purposes only. Investors flocked to the asset class because of its ability to provide stable cashflows, less correlated returns, and a hedge against inflation. 48% of respondents were senior level professionals. Total private markets assets under management (AUM) reached $11.7 trillion as of June 30, 2022. We asked the CEO of Moonfare what it takes to get ordinary investors up to speed and investing in private equity with confidence. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia. Trial by fire: Indian PE ecosystem resilient in a globally challenging year. Real estate (23 percent) and private equity (15 percent) declined most precipitously from 2021s record highs, while private credit (+2 percent) proved more resilient. Indeed, real estate performance has exceeded inflation in six of the last seven inflationary periods, in part due to cap rate compression even during a rising interest rate environment. The largest five managers accounted for 29 percent of all fundraising, the highest share of the last decade, and tenants favored class A real estate as they fought to attract and retain employees. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. New platforms comprised 28 percent of total transactions in 2022, 14 percentage points lower than five years ago. The median VC and growth funds lost 6.3 and 7.3 percent, respectively, through the first three quarters of 2022, while the median buyout fund earned 0.9 percent. (As of 09/09/2021). Because of the deterioration in technology valuations, VC and growth equity returns led the fall, in stark contrast to the last several years. Going into 2022, PE investors remain largely bullish on the investment activity outlook. Deal volumes declined 27 percent as financing became more expensive and harder to access. This material has been issued by any one or more of the following entities: EMEA: This material is for Professional Clients/Accredited Investors only. Compared with a heady prior decade of robust growth, 2022 was a subdued year in the private markets. For example, while China tech was initially a copycat play, Chinas Internet sector has surpassed the U.S. in several areas (e.g., mobile payments, online shopping). In 2022, mezzanine strategies were most in favor, posting record fundraising totals and more than tripling 2021s haul. European firms seem to lead the pack, with 27% saying they have either fully implemented digital technologies or are in the advance stages; by comparison, only 20% of North American investors are in the same stage. A United Nations-supported network of investors promoting sustainable investment. However, the overall number of firms not considering ESG factors when looking for new investments remained unchanged from last year at approximately 20%. 10 Morgan Stanley Research, Investor Presentation India Banks, November 11, 2022. Beyond China (which is currently facing its own challenges), leapfrog potential exists in other parts of Asia. Too many business leaders lack a clear understanding of profitability, but a few organizations are visualizing profits in startling detail. Going forward, shifting macroeconomic conditions will make efficiency initiatives an increasingly important value driver in Asian private equity. 44% of respondents indicated they are planning to focus on improving ESG related factors in their portfolio companies this year, and 32% are seeking investments with a good ESG track record, up from 29% in 2021. In the private markets, first-half deal activity softened but subtly so, nearly matching the record-setting pace set in 2021. Valuation multiples have been falling across both public and private markets, with venture capital positions arguably the most . In the first half of 2022, central banks fought roaring inflation by sharply raising interest rates, and public market valuations cratered. Each region benefited from an investment spree, with Latin America (LatAm) and North America (NA) witnessing the highest uptick in aggregate deal value year-on-year. The deal-making momentum of 2021 continued through the first half of 2022, and despite the striking slowdown in second-half deal activity, 2022 remained the second most active year on record. Another prevailing theme for the upcoming months to grow in significance will be digitalization. One recent survey indicates that nearly three-quarters of LPs would consider eliminating a manager from consideration if it was unable to provide acceptable standards of ESG-related disclosures.7Global Private Equity Barometer, Coller Capital, Winter 202223. For example, recent McKinsey research found that publicly traded ESG outperformers that also outperformed peers on margin and growth delivered 200 basis points in excess return to their shareholders over companies that only outperformed financially.6McKinsey research to be published. ASIAN BUSINESSES RIPE FOR PROFESSIONALIZATION This can lead to less friction as industries grow. 37% think it will remain the same, a slight increase over 2021 when only 27% of investors expected deal activity to remain flat. In the EU, MSIM and Eaton Vance materials are issued by MSIM Fund Management (Ireland) Limited (FMIL). Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. Performance also declined from 2021s high as lower marks offset current yield gains. Its our market overview from Bain & Companys 2022 Global Private Equity Report. Many attributes of businesses located in Asia are well-suited to operational improvements that can both further growth and increase margins. Notwithstanding these risks, a variety of factorsaccelerated growth/leapfrog potential in underpenetrated industries, opaque and attractive valuations relative to developed markets, and overlooked opportunities for improvements in operational efficiencycontribute to the regions potential for outperformance. Investors looking to Asia usually ask, Can I expect a risk premium? In short, yesat least based on MSIMs analysis. Globally, the number of companies that are beginning to implement ESG-related practices has decreased since the previous year, indicating that many companies are already well into their ESG journey. Dieses Dokument ist ein Marketingdokument. www.preqin.com, [4] S&P Capital IQ Pro Platform (as of 27/01/2022). This material is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. Consideration of ESG is not limited to fundraising and deal activity. High inflation persisted throughout most of 2022, prompting central banks around the world to increase interest rates at a historic pace. The table below indicates the fund types Preqin considers as constituting each asset class. TECH AS A LEAPFROG OPPORTUNITY And while infrastructure and NR fund performance declined somewhat from 2021, these funds were the top-performing private markets asset classes in 2022. The third risk factor concerning PE/VC firms this year has changed considerably from last year. No investment should be made without proper consideration of the risks and advice from your tax, accounting, legal or other advisors as you deem appropriate. Open-end funds in the US grew NAV by 24 percent, with contributions exceeding distributions for the first time in two years. This is up from 51% in 2021, indicating that its attractiveness continues to grow year-on-year. Companies with cutting-edge tech and design can be positioned for Asia and/or global expansion and sold at a premium valuation. An example of this are the shares of Indian banks and non-bank finance companies (NBFCs) where the highest quality banks/NBFCs trade at Price/Book multiples 3-7x that of the market median.10. 20% of all survey participants think that large LPs pouring capital into fewer funds with established LP-GP relationships is the second most common challenge, a sentiment felt most by European investors (23%). Hong Kong: This material is disseminated by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to "professional investors" as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). Jim Caron, Co-Lead Global Portfolio Manager and Co-Chief Investment Officer of the Global Balanced Risk Control (GBaR) Team, shares his macro thematic views on key market drivers. Datenschutz New government policies that provide incentives for certain ESG investmentsmost notably the US Inflation Reduction Act of 2022are likely to strengthen this correlation further. Report is also available in Chinese, Japanese and Korean upon download. As of the second quarter of 2022, dry powder exceeded $3 trillion, reflecting an 8.4 percent year-over-year increase and marking the eighth consecutive year of growth. At $2.5 Bn, MSIM Raises One of the Largest Funds Focused on Single Asset GP-Led Continuation Vehicles. Retrieved from: https://pages.marketintelligence.spglobal.com/2021-Year-in-Review-Investment-Banking-Infographic.htm. At the same time, deal volume grew by 41.6% over 2020, proving that investors predictions of improved deal-making in 2021 came to fruition. 1 Subject to third party confidentiality obligations and internal policies and procedures established by Morgan Stanley, including information barriers and allocation policies, to manage potential and actual conflicts of interest and/or in respect of regulatory requirements. While the long-term demand for capital is tremendous, with a projected global infrastructure spending gap of $15 trillion through 2030,2McKinsey. The 2022 Global Private Equity Report: Market Overview 00:00 08:58 Today on Dry Powder, we'll cover the essential indicators of 2021, which can inform your strategy in 2022 and beyond. Unser aktueller Artikel aus der Reihe Tales from the Emerging World gewhrt Einblicke in neue Trends in den Schwellenlndern. On the heels of a banner 2021, which set records for fundraising and deal making and produced exceptionally strong returns, PE fell back to earth in 2022. To date, top-line revenue growth has been the largest contributor to Asian PE returns.11 This is unsurprising, given that until recently growth has been easy to come by in Asian markets, making efficiency (and hence margin) improvement less of a focus. Following the record highs achieved in 2021, which were buoyed by pent-up demand from the earlier stages of the pandemic, several exogenous macroeconomic events stymied growth. Globally, fundraising fell 15 percent from the all-time high achieved in 2021 (Exhibit 3). As in 2020, when private debt was the only private asset class that recorded fundraising growth, investors ability to allocate to one or another strategy based on the prevailing market environment has contributed to consistent top-line growth through business cycles (Exhibit 7). The investment strategies described in the preceding pages may not be suitable for the recipients specific circumstances; accordingly, you should consult your own tax, legal or other advisors, both at the outset of any transaction and on an ongoing basis, to determine such suitability. While emerging Asian countries generally lag in terms of adoption of traditional banking products (e.g., credit cards),5 consumers in emerging Asia over-index on adoption of fintech products.6 Knowledge gains from more established regions can serve as the foundation for even better solutions in more emerging Asian regions. The research defines outperformers as companies whose score on a series of assessed ESG metrics improved over time. Andrew Slimmon, Lead Portfolio Manager der Fonds und Strategien des Applied Equity Advisors Teams, teilt seine Einschtzung der Finanzmrkte. 37% think it will remain the same, a slight increase over 2021 when only 27% of investors expected deal activity to remain flat. The economic effects of the pandemic continue to linger; however, as PE/VC firms have gained more experience with its impact, it has become less of a concern, dropping to second place this year (48%). Digital innovation and transformation across existing workflows are imperative for PE firms wishing to maintain a competitive edge among peers. After a frenzied 2021, private equity (PE) deal volume decreased 26 percent to $2.4 trillion, while deal count fell 15 percent to just under 60,000. OVERVIEW OF THE INDUSTRY Executive Summary Despite the economic slowdown triggered by the pandemic, global private equity & venture capital AUM has increased by 6.1% from the end of 2019, to $4.74tn as of June 2020. AUM grew as well, reaching a new high of $1.3 trillion, 14.2 percent higher than in 2021. In a break from years past, PE performed worse than other private asset classes, producing negative returns (through September 30, 2022) for the first time since 2008. S&P Global. (As of 16/11/2021). Retrieved from: https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/article?id=66494139. This trajectory led to faster adoption; based on data from 1997-2015, unicorn status Chinese Internet startups took an average of four years to reach their $1 billion valuationversus seven years for their U.S. counterparts. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Disallowed Products Our Products Preqin Pro Alternative assets data platform Insights+ The authors wish to thank Sara Bernow, Brodie Boland,Sophia Braes, Jonathan Christy, Chris Gorman, Alastair Green, Sean Kane, Kayla Miele, Alexandra Nee,Robert Palter, Alex Panas, Jason Phillips, Adam Pulsipher, Jeff Rudnicki, and Rahel Schneider for their contributions. Like the strategies for other asset classes, infrastructure and NR strategies were affected by macroeconomic challenges. Private markets deal volume plummeted, performance declined, and valuations felldramatically in certain sectors. 11 Bain & Company, "Asia-Pacific Private Equity Report 2022". There was a notable drop in private debt deal volumes, driven by the slowdown in PE and only partially offset by market share gains taken from bank and syndicated financing channels (Exhibit 8). Information regarding expected market returns and market outlooks is based on the research, analysis, and opinions of the investment team of the Private Markets Solutions Team. Private market valuation refers to round size, as determined by capital invested divided by no of deals. For illustrative purposes only.[8]. Mobile solutions such as real-time online loans to the unbanked, leveraging digital information, cross-border transfers at lower friction/cost, etc., are all helping to boost financial inclusion in Southeast Asia. In the early 2000s, Chinas tech industry followed a copycat model, with consumers adopting technology that had proven successful in the U.S. Key Takeaways Buyout deal value and exits set all-time records for the industry. PE buyout entry multiples declined slightly in 2022, falling to 12.9 times EBITDA from a record 13.2 times a year ago, while public market multiples compressed dramatically, declining to 12.0 from 14.6 times EBITDA. Unsurprisingly, growth is a leading factor that makes Asia an appealing target for private investment capital. [2] Private equity managers expect another boom year in 2022. Though few LPs thus far have abandoned commitment plans entirely or sold portfolios as they did 15 years ago, many have pulled back, particularly from smaller and newer funds, causing fundraising to decline. In the context of elevated investment levels, this likely suggests that investors are growing wary of risks such as inflation, rising interest rates and high valuations that could put the brakes on this unprecedented pace of transactions.[2]. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association. The prevailing market uncertainty also served as a shot in the arm for private credit deployment opportunities. S&P Global Market Intelligence Retrieved from: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-managers-expect-another-boom-year-in-2022-68394243, [3] Preqin Pro, (as of 07/02/2022). According to our latest Global Private Markets Review, private markets faced a year of two halves in 2022, with buoyancy in the first half and plummeting deal volumes, declining performance, and falling valuations in the second. ITS NOT JUST THE PRICE Calvert Research and Management, ARBN 635 157 434 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws.
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2022 preqin global private equity venture capital report