The value of private market assets is set to more than double to $12-trillion by the end of 2029, with growth being driven by the delisting of public companies, a shift in institutional and super-wealthy investor interest towards private investments, and a decline in analyst coverage of public companies.
London-based investment data company Preqin forecasts the private equity market will experience an annualised growth rate of 12.8% until the end of 2029, based on the $5.8-trillion assets under management at the end of 2023.
The investment portfolios of the ultra-wealthy reflect this growing interest in private market assets, with such families seeking to capitalise on the growing number of private market investment opportunities compared with public ones.
As a result, on average they have more than a third (34%) of their wealth invested in private market assets, according to the UBS Family Office Report 2024.
Preqin attributes the growth in private markets to several factors: private companies remaining private for longer, delistings, a lacklustre market for initial public offerings and an overall decline in the number of listed companies.
Public market investment opportunities are certainly on the decline in SA and European stock markets as delisting reduces the number of options that meet institutional investors’ long-term funding needs. In SA the delisting of Sasfin Holdings and Bell Equipment has reduced the number of listed companies on the JSE to 274 from 616 in 2000.
Less quality research on public companies has also become a challenge; the number of analysts covering listed companies has fallen since the Markets in Financial Instruments Directive II regulatory requirement that stockbrokers unbundle their sell-side research from their trading services. Research has shown a “statistically significant” decrease in analyst coverage for EU firms relative to US controls of about 10% to 15%.
Increasingly stringent regulatory requirements imposed on listed companies have discouraged companies from going public or remaining listed. While regulating public markets is not necessarily bad because it minimises public market blow-ups, achieving a balance between protecting investors and creating an enabling regulatory environment for growth and innovation is difficult.
Justifiable decision
Performance data justifies the increasing interest in private assets. According to the Stonehage Fleming research, drawing on data sourced from the UBS Global Family Office Report 2024, Pitchbook Q1-2024 and FactSet August 2024, private markets, which encompass private equity, growth equity, real assets and real estate, have significantly outperformed the public markets, with initial capital invested multiplying by 10.4 times between 2000 and 2024.
Investments in private equity investments, the most significant component of private markets, multiplied by 15.9 times, growth equity 14.4 times, real assets 11.1 times and real estate 7.6 times, according to our research. That compares favourably with the S&P 500’s 5.7 times growth since 2000 in initial capital invested and the MSCI World Total Return Index’s 4.4 times increase.
Investors are attracted to the asset class’s lower price volatility than public markets, potentially higher capital returns and/or yield potential, diversification characteristics, potential inflation hedge qualities, and a market environment ripe with opportunities.
There are various ways to get exposure to private markets, including private equity funds, real assets, real estate and private credit. However, entrepreneurial families tend to have an affinity for direct private investments.
Besides the greater capital growth potential, ultra-wealthy families prefer having more influence over strategic decisions and business priorities of companies in which they invest. These families also tend to have longer, multigenerational investment horizons that are well suited for private assets, such as unlisted companies, that pay off in the longer term.
Though information on private companies may not be broadly publicly available, ultra-wealthy families looking to invest can get access to higher-quality and more detailed financial information on those assets than on public companies. That’s because private equity managers negotiating the deals typically have a direct line to the CEO and executive management of the private companies seeking external funding.
Access to information
Identifying the most promising investment opportunities in private markets is more complex than in public markets because there is less publicly available information on the universe of investment options. Growing demand for private assets also makes it harder to get in on the action.
Stonehage Fleming curates deal flow for its ultra-wealthy clients from the hundreds of opportunities received yearly from its global network. It selects 10 to 15 growth equity, real asset or real estate quality opportunities a year and typically completes two to five of these a year. The family office focuses on certain themes within growth equity and real assets because these have the most appropriate risk-return profiles for wealthy clients.
The private markets team avoids the momentum areas of the market, such as the plant-based companies, crypto exchanges and consumer-facing businesses, instead investing in sectors that have good, sustainable valuations, such as enterprise software companies and businesses that will benefit from the energy transition.
Growth equity opportunities need to meet certain requirements. These include being profitable or nearing profitability and having the capital to scale operations. They must also be revenue-generating, high-growth businesses with large addressable markets, strong barriers to entry and robust intellectual property or technology.
Within the real asset space, Stonehage Fleming focuses on opportunities in insurance and the energy transition with lower risk profiles than growth equity but steady long-term returns. Infrastructure opportunities are growing strongly as developed and developing markets seek to expand their infrastructure.
Preqin forecasts global unlisted infrastructure assets under management will reach $2.4-trillion in 2029, driven by the energy transition.
• Hill is private markets partner at Stonehage Fleming.
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