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Why investment in private equity continues to be dynamic

In the current macroeconomic environment, private equity has once again proven its resilience by offering higher returns than other asset classes on average, as well as an illiquidity premium to investors for their long-term commitment says Markus Benzler, head multi-managers private equity UBS Asset Management.
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

Disclaimer:

For professional/institutional investors only. This document and its contents have not been reviewed by, delivered to or registered with any regulatory or other relevant authority in any jurisdiction. This document is for informational purposes and should not be construed as an offer or invitation to the public, direct or indirect, to buy or sell securities. This document is intended for limited distribution and only to the extent permitted under applicable laws in any jurisdiction. No representations are made with respect to the eligibility of any recipients of this document to acquire interests in securities under the laws of any jurisdiction.

Using, copying, redistributing, or republishing any part of this document without prior written permission from UBS Asset Management (Singapore) Ltd. is prohibited. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such objectives or expectations will be achieved or risks are fully disclosed. The information and opinions contained in this document is based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any misrepresentation, errors or omissions. All such information and opinions are subject to change without notice. A number of comments in this document are based on current expectations and are considered “forward-looking statements”. Actual future results may prove to be different from expectations and any unforeseen risk or event may arise in the future. The opinions expressed are a reflection of UBS Asset Management (Singapore) Ltd’s judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed.

You are advised to exercise caution in relation to this document. The information in this document does not constitute advice and does not take into consideration your investment objectives, legal, financial or tax situation or particular needs in any other respect. Investors should be aware that past performance of investment is not necessarily indicative of future performance. Potential for profit is accompanied by possibility of loss. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

Source for all data and charts (if not indicated otherwise): UBS Asset Management (Singapore) Ltd. (UEN 199308367C)

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