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He private capital the industry has grown to over $ 7 billion thanks to the demand for more profitable but expensive and opaque strategies, which prompted Schroders and JPMorgan to launch new divisions and send others in search of acquisitions.
While still hampered by the traditional asset management industry (which invests primarily in dominant, publicly traded and bond markets), explosive growth in areas such as private capital has raised the size of the private equity industry. global to $ 7.4 billion by the end of 2020, according to Morgan Stanley. The bank expects it to reach $ 13 billion by 2025.
Private capital is now growing so fast as a cheap investment tracking index, which causes many large asset management groups to expand their operations in the area to counteract the profit pressures of traditional investment pathways.
Schroders, the largest investment group in the UK, earlier this week announced would consolidate all its private equity vehicles into a new entity called Schroders Capital. At an investor event, it also pledged to double the size of those assets to £ 86 billion by the end of 2025, Barclays noted.
“Platforms will be key to what I call the‘ industrialization ’of private markets,” said Georg Wunderlin, global head of Schroders Capital. “We may be 15 years back in public procurement, but the industry is maturing in a similar way.”
JPMorgan Asset Management also created a new division called this week JPMorgan Private equity to house their operations in this area, while other investor groups have said they are looking for acquisitions to start their work.
“It’s something we’re evaluating,” Robert Sharps, president and chief investment officer of T Rowe Price, said at the company’s annual shareholders ’meeting last month. “The trend toward greater allocation to illiquid strategies and private assets among many of our clients is not something we are missing out on.”
Industry experts say the main drivers of the appetite for private equity investments are the low interest rate environment and high stock market valuations, which have slowed the prospects for future profitability of these asset classes. At the same time, private markets are less volatile as they rarely operate and valuations can be more subjective, an opacity that actually increases their brilliance for many investors.
For many investment groups, under pressure from the explosive popularity of cheap and passive funds, appetite is a big boon, Morgan Stanley analysts noted on Thursday.
“For traditional asset managers, commissions will be relatively more difficult to defend given the commodification of the industry and the existing challenges on the margin,” the report noted. “As a result, we expect traditional asset managers to make more use of these levers to defend existing revenue groups while opting for alternatives with their higher fat tariff set and private markets with higher structural growth.”
Private capital it still represents the largest piece of the private equity universe, with assets of more than $ 3 million, but it is growing more slowly than areas such as private credit, funds that evade banks and grant tailor-made loans directly to companies and infrastructure.
However, the fastest growing corner is called “growth equity”, Which usually involves investing in companies that are too large to take advantage of classic venture capital firms, but who do not want to go public or sell entirely to private capital.
Growth equity accounted for 14% of the private equity industry at the end of last year, up from 5% in 2005, according to Morgan Stanley. JPMorgan Asset Management earlier this week said it had sought Christopher Dawe of Goldman Sachs to lead a new arm of equity investment as part of its broader push toward private equity.
“Growth equity and private debt are among the fastest growing asset classes in the alternatives industry, with strong demand from individual and institutional investors to look beyond public markets,” he said. said Brian Carlin, CEO of the newly created JPMorgan Private Capital. in a statement.
He private capital the industry has amassed nearly $ 2.5 million in “dry dust,” money committed to investors but not yet deployed. This has underscored fierce competition for attractive deals and has led some analysts to warn that yields may not remain as floating as they have historically been.
Email: robin.wigglesworth@ft.com
Twitter: @robinwigg
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