Summary
Private equity (PE) is a growing industry that has always attracted ambitious top talent due to its high risk/high gain capital investment.
In 2018, we saw the global private equity industry boom at an unprecedented pace. There was a surge in investment value – the strongest five-year stretch in history. However, intense competition restrained deal count, with the number of individual transactions dropping by 13%. Meanwhile, private capital dry powder grew by $320 billion in one year and hit a record high of $2.1 trillion at the end of June 2018.
It’s expected that we’ll see PE grow significantly in the next four years as it’s been predicted that the alternative assets industry will hit $14 trillion in assets under management (AUM) with PE AUM surpassing that of hedge funds. But how will all of this contribute to new trends that are likely to emerge within PE in the next few years?Greater focus on Environmental, Social and Governance (ESG) The practise of ESG involves considering and integrating societal and corporate factors into investment strategies. It’s become a big talking point in the PE sector in recent years with the increasing demand for responsible investment alternatives that will preserve, or increase, the long-term value of assets. In the next four years, almost half of alternative fund managers will implement ESG values in investments they make, according to a report by Preqin. While ESG is already significant within PE, the rapidly changing social and environmental state of the world will instate this as a priority. To support this, Preqin’s report also predicts that in 2023, the proportion of fund manager investments implementing ESG policies will rise to 41%, from 35% in 2018.
Several developments within ESG are currently propelling interest including limited partners’ (LPs) demands on general partners (GPs) to demonstrate their structured approach to managing risks and opportunities. This is vital for GPs to brush up on as there is evidence investors have begun to restrict access to capital in the case of poor ESG performance. Going forward, it’s likely that there will be more consideration given to ESG now that there will be greater benefits for the good practise of it. Increased consolidation of private equity firmsAlthough the PE industry has an abundance of capital, a Preqin survey found that four out of five PE fund managers have reported higher cases of competition for capital than ever before. This is likely to push smaller firms out of the market, leaving them struggling to compete – and inevitably leading to higher reports of acquisitions, mergers and consolidation within the industry than ever before.
When asked by Mergermarket, 57% of private equity leaders said that faced with mounting competition, they were likely to make acquisitions based on market differentials — and 56% aimed to create vertically integrated portfolio companies. The success of the PE industry has led to an excess of dry powder which means there is much higher pressure to secure deals. PE firms should think outside the box to ensure they stay afloat – solutions could include consolidating with competitors, following different deal structures and growing globally and into adjacent markets.
Reaping the rewards of PE techLike PE, technology is also increasing at a staggering rate and affecting many industries along with it. Technology can be integrated into PE to increase the efficiency of numerous activities such as performance benchmarking, company analysis and reporting. Technology not only provides faster solutions than manual reports, but more accurate ones as well. It’s not surprising then that 92% of respondents from the Mergermarket report have admitted they will need to integrate technology into their practise within the next two years.
Logistically, customer relationship management (CRM) systems and automated sales invoices can speed up admin processes and present real value to the company by saving precious time. Similarly, machine learning can be implemented into company portfolios allowing for a more customised service – with 89% of investors and 75% of fund managers believing machine learning and AI will be relevant to alternative assets within four years. The future of PE sees a brilliant tide of innovation sweeping the market that utilises the best that technology has to offer to streamline many processes.
Progress your career with Marks SattinThere’s never been a better time to work in private equity. Marks Sattin recruits talented candidates for senior roles in the private equity sector. If you’re interested to see how we can help you land your dream role, contact us today or apply for one of our many vacancies. Alternatively, if you’re recruiting for the private equity sector, register your vacancy with us and let us help you with your search.
Teaser
Private equity (PE) is a growing industry that has always attracted ambitious top talent due to its high risk/high gain capital investment.
