Over the last decade, conventional private equity funds have demonstrated an exceptional track record of value creation via buyout and growth vehicles. With attractive alpha and fundraising levels reaching new all-time highs, the industry has become exceedingly competitive. In this landscape, numerous funds have successfully improved their positioning by leveraging their brands and capabilities beyond PE to meet increasing demand from LPs.
Private equity continues to dominate as the largest private asset class. At a time when deal multiples are at record levels, complementary strategies including buy-and-build with potential for impressive growth, co-investment to optimize the risk-return balance, and auxiliary small- and mid-cap acquisitions have become popular among firms. While mega-buyouts tend to offer desirable consistency at scale, the spread of returns is much greater in the mid-market, such that top managers can outperform average IRR by a wide margin.
The chase for yield in the persisting low-interest environment has led investors to turn to direct lending. These institutions fill parts of the financing void caused by the retreat of traditional lenders since the financial crisis. Credit funds now help companies and, in particular, SMEs to gain access to crucial capital solutions, leading to an unprecedented growth of private debt markets.
Similarly, investors looking for the strong returns of private markets with a lower risk profile have been pouring capital into infrastructure and real estate investments to supplant their portfolio’s fixed income allocation. The substantial amount of annual investments required by long-term economic growth is sure to present further opportunities for private capital in real assets.
Collectively, these developments have helped the industry broaden its appeal to LPs without abandoning its underlying structures. We are eager to discuss strategies in private markets across asset classes and industry trends with you at the Campus for Finance – WHU Private Equity Conference 2020.
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