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Relevance of private markets rises, global AUM touches new high of $5.8 trillion: Report

FE Bureau


Relevance of private markets continues to increase, with global assets under management reaching a new high of $5.8 trillion in 2018, said a McKinsey report.


Deal value also reached an all-time high of $1.4 trillion globally, eclipsing 2007 s prior record, with notable growth in technology and business services sectors driven, in part, by a record $10-billion-plus deals.

In 2018, fundraising slowed slightly from 2017 s record clip, falling to $778 billion down by 11% but still in very rare air. The decline was broad-based, as every region and most asset classes fell. While overall fundraising eased slightly from the heights of the prior two years, there was continued strong growth in venture capital and infrastructure, the report said.

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Private equity net asset value has grown by 7.5x since 2002 more than twice the growth rate of public market capitalisation, which is up 3x in the same period.

Between 2006 and 2017, while the number of publicly-traded companies in developed markets fell 16% from 5,100 to 4,300, companies under private equity ownership increased by 106% from 4,000 to 8,000, McKinsey said in the report. Even some large investors that had previously stayed away are now allocating to private markets, seeing them as necessary to get diversified exposure to global growth, it indicated.

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The McKinsey report also pointed out the similarities between private market s environment now and in 2007. Deal pricing is high, covenant-light debt is common, dry powder keeps rising, and new firms are appearing every day, it said.

At the same time, there are some important differences the market is twice as large, the average deal is smaller and less levered; club deals are no more; fundraising has slowed slightly; and general partners (GPs) and limited partners (LPs) alike are more attuned to vintage risk.

While private equity fundraising fell overall, venture capital bucked the trend, growing 13% year on year (18% per annum over the last five). Growth was driven largely by a cohort of newer managers and very large funds that have caused some to question the boundaries of the asset class. Deal value reached an all-time high of $251 billion in 2018, including a record 25 rounds of over $1 billion apiece.

Infrastructure fundraising grew 17% globally and 59% in Europe, backed by a rising long-term secular need for investment.

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In its outlook for 2019, McKinsey further pointed out that despite the 2018 slowdown in fundraising, predictions are robust for 2019 with funds targeting $300 billion, roughly double the number sought this time last year.

Private markets firms are dedicating greater efforts to advancing the efficiency and differentiation of their own internal systems, aiming for greater efficiency at scale and beginning to look to digital tools for scalability and competitive advantage, the report added.