This document is disseminated in Japan by MSIMJ, Registered No. Fundraising hit a new record in 2021 with established fund managers riding the wave. At $2.5 Bn, MSIM Raises One of the Largest Funds Focused on Single Asset GP-Led Continuation Vehicles. Jim Caron, Co-Lead Global Portfolio Manager and Co-Chief Investment Officer of the Global Balanced Risk Control (GBaR) Team, shares his macro thematic views on key market drivers. Outside the US and EU, Eaton Vance materials are issued by Eaton Vance Management (International) Limited ("EVMI") 125 Old Broad Street, London, EC2N 1AR, UK, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority. In the early 2000s, Chinas tech industry followed a copycat model, with consumers adopting technology that had proven successful in the U.S. Here's what it means for private investors. Information regarding expected market returns and market outlooks is based on the research, analysis, and opinions of the investment team of the Private Markets Solutions Team. A surge in deal-making drove global private equity deal value to a total of $603 billion as of October 2021, or $804 billion on an annualized basis, which Preqin notes would surpass a record the industry set in 2007. [8] Multiple selections were allowed. These disruptions had substantial and varied impacts on private markets fundraising, performance, and AUM growth, with steep declines in certain regions and strategies, and pockets of resilience in others. Note: Credit Card Penetration as defined by percentage of people age 15+ who use credit cards Source: Statista, data as of June 2022, Source: PPRO Asia Pacific, Western and Central Europe, North America Payments and e-commerce report 2022. Private debt was not immune to the macroeconomic conditions last year, however. In almost every regard, 2021 was an exceptional year (as we highlightedin last years report) but it was not a trend breaker. On the supply side, the closing of a record number of global megafunds boosted fundraising. By just about any measure, private equity set a remarkable new standard in 2021. Open-end funds in the US grew NAV by 24 percent, with contributions exceeding distributions for the first time in two years. Beyond localized operations, the ability to adapt to unique customs can be both a hurdle and opportunity. Unsurprisingly, growth is a leading factor that makes Asia an appealing target for private investment capital. 12 Weforum.org How reform has made Chinas state-owned enterprises stronger October 2020. Signs of a flight to quality, or at least to better-known managers, emerged. Like deal-making, fundraising also saw an upward growth trajectory in 2021 as money flew abundantly into private markets. Infrastructure and natural resources grow and evolve, Private markets advance their ESG agendas. Paired with lower valuations public market valuations trading as much as 40-50% lower than the US on a P/E basis,8 and private markets valuations that have almost halved from their peak9 there should be a particularly attractive opportunity at hand. The discrepancy this year drove private market allocations higher on a percentage basis across institutional portfolioscloser to preexisting targets for most, and above targets for many limited partners (LPs)triggering the so-called denominator effect. The five-year horizon internal rate of return (IRR) of 19.2% trails global private equity (20.8%), but the one-year return of 24.8% is some way above the 14.4% for private equity globally. 1981121. Deal volume fell 20 percent, declining in each consecutive quarter throughout the year (Exhibit 5). Conversely, only 18% of North American respondents see it as a hindrance, the smallest percentage across all regions. More than 40% of both European and North American investors are concerned about the availability of key skills and talent, the highest number across all regions. Venture capital is gearing up for a cold spell as portfolio companies' growth and fundraising are slowing. Counterintuitively, manager selection mattered less in 2022 than in years past: the interquartile spread of returns of PE funds narrowed in 2022 to 21.6 percent from the prior ten-year average of 33.8 percent. Infrastructure and natural resources (NR) overcame broader market headwinds in 2022 to set a new fundraising record of $158 billion (Exhibit 9). Concerns over start-ups' high burn rate and limited exit options caused by a global equity sell-off have extended funds' holding periods and slowed capital distribution. As overall GDP growth slows, efficiency improvement will become increasingly more important. However, cap rates started expanding toward the end of 2022, signaling heightened uncertainty across real estate markets. The complexity and idiosyncrasies of Asian markets usually result in greater opacity to valuations. As of the second quarter of 2022, dry powder exceeded $3 trillion, reflecting an 8.4 percent year-over-year increase and marking the eighth consecutive year of growth. Private market valuation refers to round size, as determined by capital invested divided by no of deals. MSIM will look to address these risks/opportunities in future briefs. *I have read thePrivacy Policyand agree to its terms. Registered in England. Amid the challenges, public markets sold off substantially, and though private markets remained relatively buoyant in the first half of 2022, they followed in the latter half. MSIM's affiliates are: Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd, Calvert Research and Management, Eaton Vance Management, Parametric Portfolio Associates LLC, and Atlanta Capital Management LLC. This progress is a result of many factors. At the same time, deal volume grew by 41.6% over 2020, proving that investors predictions of improved deal-making in 2021 came to fruition. An example of this are the shares of Indian banks and non-bank finance companies (NBFCs) where the highest quality banks/NBFCs trade at Price/Book multiples 3-7x that of the market median.10. Retrieved from: https://www.ey.com/en_us/private-equity/pulse, [10] Key Trends that will drive the ESG agenda in 2022. Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. Gbenga Oladeji oversees Global Private Markets for Johnson & Johnson Benefits Investment team. Finally, macroeconomic forces, including higher energy prices and geopolitical conflict, have strengthened long-term investor interest in alternative energy sources and overall energy independence. For example, while China tech was initially a copycat play, Chinas Internet sector has surpassed the U.S. in several areas (e.g., mobile payments, online shopping). Hong Kong: This material is disseminated by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to "professional investors" as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). As the industry narrative turned from beta to alpha, there was less alpha to be had in 2022. of the securities, and MSIMJ accepts such commission. Alternative investments typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors. January 31st, 2023. Vintage years beyond 2017 have been excluded as performance is less mature and may be too early to tell. VC and growth equity both had their second-largest fundraising year on record, cumulatively accounting for more than 50 percent of PE fundraising for the first time. No investment should be made without proper consideration of the risks and advice from your tax, accounting, legal or other advisors as you deem appropriate. Globally, the number of companies that are beginning to implement ESG-related practices has decreased since the previous year, indicating that many companies are already well into their ESG journey. Buyout deal value and exits set all-time records for the industry. As institutional capital gravitates toward massive generalist private market managers with well-established . Eine monatliche Publikation mit den neuesten Einblicken des Global Multi-Asset Teams zum Wirtschafts- und Marktumfeld und zur optimalen Portfoliopositionierung. In China, state-owned enterprises make up approximately 40% of GDP.12 These companies have traditionally been less nimble and commercially focused than their private counterparts, with many straightforward areas for operational improvement. This year we also included a question on investors advances on their digitization and automation journey. 18% of APAC investors say that LPs demanding diversification and fierce competition against larger firms pose other significant fundraising challenges. APAC investors are the most enthusiastic at 91%. For more from Dry Powder on the report, you can listen to Three Essential Trends . NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT. On average, 56% of respondents believe deal activity will improve in the next 12 months. Market Intelligence Healthcare follows IT as the second top industry, up to 47% from 43% in 2021, attracting more investors as the sectorcontinues to offer opportunities, especially in the Healthcare Technology industry. After making an investment, GPs have five value creation levers they can pull to improve their portfolio: Pontus Averstad is a senior partner in McKinseys Stockholm office; Alejandro Beltrn is a senior partner in the Madrid office;Marcel Brinkman is a partner in the London office; Paul Maia is a partner in the New Jersey office; Gary Pinshaw is a senior partner in the Sydney office; David Quigley is a senior partner in the New York office, where Aditya Sanghvi is a senior partner; andJohn Spivey is an associate partner in the Boston office, where Brian Vickery is a partner. 37% think it will remain the same, a slight increase over 2021 when only 27% of investors expected deal activity to remain flat. Stay on top of today's volatile markets with these timely resources. 9 Source: AVCJ, data as of September 30, 2022. Disallowed Products Our Products Preqin Pro Alternative assets data platform Insights+ For illustrative purposes only.[8]. The continued momentum in 2022 was understandable, as debts current yield and senior position in the capital stack have long made it a haven in volatile periods. Morgan Stanley Investment Management (MSIM) views private equity in Asia as a potential bright spot for investors that offers the opportunity for outperformance, particularly at the current juncture. Companies with cutting-edge tech and design can be positioned for Asia and/or global expansion and sold at a premium valuation. The growth rate was lower
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