Why investment in private equity continues to be dynamic

Investor demand for private equity remains strong, although at lower levels when compared to the heights of 2021. There are three main reasons for this:

1. With higher interest rates, fixed income investments represent additional competition when it comes to the choice of investments for investors.

2. Investors remain cautious given the general market environment and the uncertainty about the direction of the global economy.

3. Several large investors are facing the denominator effect — they are now overexposed to private equity because returns have fallen more slowly than in the public market. As a result, there is little or no capital to deploy. In general, we believe that this is a good time to invest in private equity, due to the relative lack of capital supply compared to previous years. That said, the current economic scenario requires caution and care.

Diversification is another advantage of private equity, which can not only improve returns but also reduce volatility. Market volatility and uncertain economic scenarios generally pave the way for private equity investments to generate higher returns.

Indeed, this is what we see historically: volatile years of economic uncertainty have been entry points for private equity, while offering high relative returns.

Considering the current environment, we see a unique market opportunity as we have just launched our fifth-generation private equity growth strategy. It offers advantages such as greater flexibility and higher transactional content than its predecessors. Investors can customise their portfolio through the innovative concept of geographic pockets (compartments), allowing them to invest in a sub-portfolio for the region of their choice: North America, Europe, or APAC.

The transactional content will represent up to 50% of the portfolio and will consist of both secondary and co-investments. In addition to diversification, this transactional content has the advantage of reducing the J-curve and the overall cost of the portfolio. As an example, our previous fund launched in early 2019 reached the breakeven point of the J-curve by December 2020. We expect similar positive results for our new strategy.

Finally, another attractive feature of this new strategy is its ESG approach, which makes it one of the few private equity funds of funds classified under Article 8 of the SFDR regulation and offering Solvency II reporting (in the European pocket).

In Asia, we have also seen demand not only for our fifth private equity growth strategy but also for our evergreen secondary strategy, which offers investors a semi-liquid, open-ended approach to access private equity.

For more information, please contact, Benno Klingenberg-Timm, head global sovereign markets APAC at [email protected] or on +65 6495 3683

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