London 13 January - Assets under management (AuM) in private markets to expand by between $4.2 trillion and $5.5 trillion in the years up to 2025 in worst/best case scenarios for economic recovery, according to new analysis from PwC.
The report, Prime time for private markets: The new value creation playbook, examines prospects for four primarily illiquid asset classes of private equity (including venture capital), infrastructure, real estate and private credit across a range of scenarios for 2019-2025.
The report projects significant growth for the value of private markets of $5.5tn (best case), $4.9tn (base case) and $4.2tn (worst case) depending on how global economic conditions respond to the disruption caused by Covid-19.
Will Jackson-Moore, global leader for private equity, real assets and sovereign funds at PwC says,
‘The report highlights the continued emergence of private markets as a fast growing and highly impactful portion of global capital markets. Investors continue to look to the sector to deliver the yields that lower risk and more liquid asset classes struggle to match.
‘Yet this is also an opportunity for private markets to take a lead on ESG and net zero commitments and demonstrate the impact they can make in public perception beyond public markets.’
Opportunities across asset classes
Even in the worst case scenario of a prolonged recession, the projections look ahead to growth of almost 50% up to 2025.
While private equity is very much “the asset class of the moment” there is evidence that there are significant opportunities for growth and returns in areas such as real estate, infrastructure and private credit.
Will Jackson-Moore says,
‘While opportunities for growth are out there, it is important to emphasise that returns will be harder to find and be more aggressively fought for. Managers will need to be innovative in their approach to value creation and respond swiftly to changing investors and governmental expectations as economies recover from the effects of the crisis.’
ESG and going beyond financial return
Will Jackson-Moore says,
‘Our research highlights the extent to which financial return is no longer the sole driver of private markets growth. ESG and Net Zero commitments now represent a significant source of value preservation and creation.
‘Private market managers need to respond by looking at how to apply an ESG lens to investment strategy and product development. Whether it is in impact turnaround initiatives in which ‘dirty’ production facilities are turned green, or building strong commitment to diversity and inclusion at your organisation, these matters are no longer an overlay.’
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