The piles of capital invested in private equity and venture capital are expected to climb much higher over the next five years.
Alternative investment data firm Preqin has predicted that industry assets under management will more than double from $4.4 trillion at the end of 2020 to $9.1 trillion in 2025. The projection is partially based on a survey of alternative investors, 79 percent of whom planned to increase their allocations to private equity over the next five years. This includes almost a quarter (23 percent) who aimed to “significantly” grow their private equity portfolios.
“There appears to be no stopping private equity and venture capital,” Cameron Joyce, vice president of research insights at Preqin, wrote in a blog post on the predictions. “We expect strong performance and net inflows into the asset class to drive a global growth rate of 15.6 percent over the period.”
Private equity assets have grown rapidly over the past five years, nearly doubling from $2.3 trillion in 2015 to $4.4 trillion in October. While the economic impact of the coronavirus pandemic and related fundraising challenges have caused industry assets under management to drop by about $70 billion this year, Preqin expects asset growth to resume next year.
“Covid-19 has not dampened investor appetite for alternatives in the longer term,” Joyce wrote, noting that just 4 percent of the survey respondents planned to decrease their allocations to private equity.
According to Preqin’s projections, the alternatives industry as a whole will grow from $10.7 trillion this year to more than $17 trillion in 2025. Private equity is expected to grow the fastest over the next five years, followed by private debt.
In a separate note, Preqin’s head of research insights David Lowery wrote that private debt “is likely to be buoyed by the global hunt for yield in an era of ‘lower for longer’ interest rates.”
“Long-term investors that need to match income with liabilities are likely to drive demand for assets with steady income streams,” he added.
The data firm projects that private debt assets will grow from $848 billion in October to almost $1.5 trillion in 2025.
For all other alternative investments, however, Preqin is projecting annual growth of 5 percent per year or less. Hedge funds, for example, are not expected to get much love from investors: Only 35 percent of survey respondents reported that they planned to increase allocations to hedge funds over the next five years, compared to 32 percent who planned to pull money out of hedge funds.
Real estate, infrastructure, and natural resources were also projected to have slow growth through 2025.