PE continues to lead private markets amid growing interest from private wealth

DUBAI: A new report from Barclays Private Bank has revealed that private equity continues to lead private markets amid growing interest from private wealth investors.

The inaugural report, ‘Forging New Paths: How private investors are capitalising on the evolution of private markets’, sheds light on the resilience and growth potential of private equity (PE), and venture capital (VC), identifying the key trends that private investors could consider when building a diversified portfolio.

It shows that despite broader economic challenges, PE funds have captured a record 50.5 percent of private capital fundraising in the year-to-date. Global closed-end private capital funds had assets under management of $14.7 trillion as of 2022, a figure projected to reach $19.6 trillion by 2028. These funds have collectively raised nearly $2 trillion in additional fresh capital since the beginning of 2023.

The report also speaks to private wealth investors’ growing interest in private markets as they increasingly recognise the opportunities presented through these fund channels, following in the footsteps of their institutional counterparts.

The report reveals:

• Both PE and VC exhibit strong historical returns, but the significance of manager selection cannot be understated. PE vintages from 2011 to 2022 outperformed the S&P 500, while VC funds, which have displayed greater volatility, have exhibited stronger returns with an 11.8 percent 15-year internal rate of return (IRR).
• Limited partners (LPs) have a preference for experienced Private Equity managers: In each year since 2019, more than 80 percent of all new PE dollars raised were closed by experienced managers, and this percentage rose to 88 percent YTD.
• Family offices are increasing and diversifying their private market allocations, reflecting a desire to capture higher returns and align investments with personal values or global trends. Whilst high net worth individuals (HNWIs) are driving greater resilience and diversification into their portfolios by looking beyond the 60/40 portfolio into the private markets, looking to complement and diversify existing public market exposures.
• There has been a significant shift in the dynamics of angel investing, with HNWIs increasingly favouring more established and traditional channels. HNWIs have pulled back somewhat from direct angel investments over the past decade as the wider private markets industry has evolved to allow private wealth investors to invest in more mature and established companies via funds or direct channels.
• Venture capital is increasingly dominant in private wealth portfolios, with nearly half of all private capital fund commitments in the past decade being allocated to VC by count. However, the number of VC funds actively raising capital has declined, presenting both challenges and opportunities for investors seeking to maintain their exposure to this dynamic asset class.

Shenal Kakad, Head of Private Markets, at Barclays Private Bank, commented: “Our report underscores the evolving sophistication of private wealth investors, who are increasingly adopting institutional strategies in their pursuit of higher returns and portfolio resilience. We are also seeing growing demand from clients looking to make private market allocations based on their desire to not only capture higher returns but also to align with their personal values or global trends.

“For high net worth individuals and family offices the opportunities within private markets are significant, but these markets are complex. Identifying the right opportunities requires expert guidance, coupled with deep knowledge of fund structures.”