Private Capital Findings, Issue 22

Foreword

As private markets continue to grow, so do the options available to investors. For many, the question of whether to invest in private markets has moved on to how they should do so to achieve the risk-return profile that meets their objectives — a complex question to answer as the range of access points, strategies and asset types expands.

In our roundtable this issue, Selecting best in breed, we discuss the findings of three pieces of research that shed some light on where investors might find outperformance. We examine how private equity returns stack up against public markets, the effect of sector specialisation on PE funds’ risk-return profiles, whether fund size really affects performance, and how growth capital managers create value in the businesses they back.

Yet it’s not just macro allocation decisions that count in private markets – with high return dispersion between the best managers and the rest, investors need to pick the right funds to back. Yet the interim reports limited partners typically rely on contain valuations that do not always accurately predict final performance. In Seeing the whole picture, we showcase new research that suggests analysing the narrative accompanying the hard numbers could be more illuminating.

Of course, investors with limited resources can use investment consultants to parse through some of private markets’ complexities. But do they really add value? And how can investors best make use of their advice, given the added costs they entail? How to listen to the experts features an interview with an academic who has explored how consultants contribute to US public pension plan PE programme returns – and why they sometimes don’t.

Secondaries is one of private markets’ biggest areas of growth, with GP-led continuation vehicles now an established market feature. Catching the next wave examines research that digs into whether these vehicles really do contain the trophy assets that fund managers claim, examines some of the LP motivations for selling, and poses the question: do they need to revisit how they approach these deals?

Private credit has been another major growth area. And, as the asset class has recently discovered, with expansion comes closer regulatory and media scrutiny. Behind the shadow discusses the findings of two recent papers based on publicly available information from US business development companies to determine the extent of systemic risk private credit poses, what loan structures look like, and whether some of them might be disguising issues.

And finally, A new approach to private markets outlines the findings of a new whitepaper on structured products, including how they can help simplify private markets exposure and how investors can mitigate some of the risks they pose.

As always, we hope you enjoy reading this issue and we welcome any comments or feedback you may have. Please contact us.