Compared with a heady prior decade of robust growth, 2022 was a subdued year in the private markets. Dieses Dokument ist ein Marketingdokument. Deal volumes declined 27 percent as financing became more expensive and harder to access. The discrepancy this year drove private market allocations higher on a percentage basis across institutional portfolioscloser to preexisting targets for most, and above targets for many limited partners (LPs)triggering the so-called denominator effect. This can lead to less friction as industries grow. Venture capital accounted for 40 percent of this total, while on a sectoral basis, power and transportation targets led the pack for the third year running. Note that the data discussed here is limited to only what is reported to Preqin; as a result, the dataset may suffer from survivorship bias. Catch new episodes by subscribing toDry PowderonApple Podcasts,Google Podcasts,Spotifyor wherever you may listen. Principles for Responsible Investment, annual report, 2022. This has played out among Korean tech companies where early-stage investments are limited to local VCs, keeping valuations modest. Nutzer mssen die Nutzungsbedingungen lesen und akzeptieren, da in diesen bestimmte gesetzliche und regulatorische Auflagen enthalten sind, die fr die Verbreitung von Informationen zu den Anlageprodukten von Morgan Stanley Investment Management gelten. Subscribe to Bain Insights, our monthly look at the critical issues facing global businesses. Beyond robust GDP growth, under-penetration in many sectors creates opportunity for accelerated growth. 2021 was an exceptional year for exits: not only did the number of exits increase by 34% from 2020, but exit value also increased by 57%. MSIM will look to address these risks/opportunities in future briefs. European firms seem to lead the pack, with 27% saying they have either fully implemented digital technologies or are in the advance stages; by comparison, only 20% of North American investors are in the same stage. Japan: For professional investors, this document is circulated or distributed for informational purposes only. NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT. In terms of advanced digitization, 14% declare their organizations have advanced to the point of leveraging data science for automated deal sourcing and due diligence, while only 7% of respondents said that digital technologies have been fully implemented into their playbook. While there is generally broad appreciation for growth potential in Asia, there is often an implicit assumption that markets are efficient with commensurate valuations, or, said differently, that higher growth potential means higher valuations.7 That is not necessarily the case in Asia. On the heels of a banner 2021, which set records for fundraising and deal making and produced exceptionally strong returns, PE fell back to earth in 2022. Like PE deal making, first-half real estate deal making continued close to the record-setting pace of the second half of 2021, but second-half volumes declined precipitously. The proportion of total private capital fundraising that came from managers with an investment policy that includes ESG issues rose to 66 percent in 2022,5Preqin. 2 Preqin, data as of September 2022. The contents of this material have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. esgSubNav, Discover more about S&P Globals offerings, Global Credit and Risk Symposium: Unlocking Possibilities, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-managers-expect-another-boom-year-in-2022-68394243, https://www.ftadviser.com/investments/2021/10/07/investing-in-the-next-generation-of-healthcare-opportunities/, https://pages.marketintelligence.spglobal.com/2021-Year-in-Review-Investment-Banking-Infographic.htm, https://www.ey.com/en_us/private-equity/pulse, https://www.spglobal.com/esg/insights/key-esg-trends-in-2022, https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/article?KeyProductLinkType=2&id=67618330, https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/article?id=66494139, JW Marriott Sao Paulo Av. There was a notable drop in private debt deal volumes, driven by the slowdown in PE and only partially offset by market share gains taken from bank and syndicated financing channels (Exhibit 8). In PE, inventory jumped from a historically low 0.9 times at the end of 2021, following a year of record deal flow that outpaced fundraising, to 1.4 times, the highest ratio since 2013. Financial services (2.5 times) and information technology (2.2 times) recorded the largest multiple declines among PE subsectors, while rising commodity prices drove multiple expansion in raw materials and resources (+2.6 times). 2 Preqin, data as of September 2022. In total, 2,543 funds held a final close, a 14% increase on the previous years tally. Infrastructure and natural resources fundraising rose to an all-time high of $158 billion, benefiting from the closing of a record five funds of more than $10 billion. The client shall delegate to MSIMJ the authorities necessary for making investment. On average, 56% of respondents believe deal activity will improve in the next 12 months. Private equity surged ahead with soaring deal and exit values. The market environment in the next few years will present further dislocation and opportunity for fundamental value creation. OVERVIEW OF THE INDUSTRY Executive Summary Despite the economic slowdown triggered by the pandemic, global private equity & venture capital AUM has increased by 6.1% from the end of 2019, to $4.74tn as of June 2020. The continued momentum in 2022 was understandable, as debts current yield and senior position in the capital stack have long made it a haven in volatile periods. 2021 was a record year for the PE industry as investment activity surpassed the trillion-dollar mark for the first time. Venture capital is gearing up for a cold spell as portfolio companies' growth and fundraising are slowing. Bain's Global Private Equity Report examines the industrys strengths, its challenges, and the evolutionary path that lies ahead. 314182, which accept responsibility for its contents. This year we also included a question on investors advances on their digitization and automation journey. By contrast, Asia-Pacific (APAC) respondents maintain the most cautious view. Ethnic, racial, and gender representation also remains imbalanced in senior positions and investing roles, suggesting that firms broadly continue to miss talent opportunities. Office, retail, and hospitalitythe sectors most affected by pandemic-driven changes in working, shopping, and travelingshowed signs of emerging stability. A pre-investment ESG diligence includes a materiality scan, ESG performance and benchmark, value-at-stake analytics, and an ESG maturity assessment. One recent survey indicates that nearly three-quarters of LPs would consider eliminating a manager from consideration if it was unable to provide acceptable standards of ESG-related disclosures.7Global Private Equity Barometer, Coller Capital, Winter 202223. This progress is a result of many factors. equity, real assets, and debt capital markets. In subsequent papers, the team will go into further depth on the region, covering topics such as the opportunity for venture capital in India and the current state of private equity in China. In China, state-owned enterprises make up approximately 40% of GDP.12 These companies have traditionally been less nimble and commercially focused than their private counterparts, with many straightforward areas for operational improvement. 2022 will prove to be the best year yet for ESG-focused fundraising, with $24 billion raised through the first half of the year. This is prepared for sophisticated investors who are capable of understanding the risks associated with the investments described herein and may not be appropriate for the recipient. In India, where valuations are persistently high, GPs can structure a win-win two-stage deal that involves an initial investment at a reasonable entry valuation, work alongside the entrepreneur to improve the operations and positioning of the company, and eventually exit together at a premium valuation. The Netherlands: MSIM FMIL (Amsterdam Branch), Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. By just about any measure, private equity set a remarkable new standard in 2021. LPs concentrated commitments among large funds as many investors chose to re-up with known, tested names while forgoing commitments to smaller, newer managers. The number of IPOs in LatAm in 2021 was on par with 2020, a levelling out of the steep increases seen in 2019, with most of them taking place in Brazil. Gbenga Oladeji oversees Global Private Markets for Johnson & Johnson Benefits Investment team. Many attributes of businesses located in Asia are well-suited to operational improvements that can both further growth and increase margins. Conversely, only 18% of North American respondents see it as a hindrance, the smallest percentage across all regions. Institutional investors sought out the asset class for various features that are attractive in times of market volatility: current yield, floating rates, and relative insulation (via its senior position in the capital stack) from declining valuations. [9] PE Pulse: Five takeaways from 4Q 2021. Banks began to pull back, unwilling or unable to lend. The five-year horizon internal rate of return (IRR) of 19.2% trails global private equity (20.8%), but the one-year return of 24.8% is some way above the 14.4% for private equity globally. Amid the challenges, public markets sold off substantially, and though private markets remained relatively buoyant in the first half of 2022, they followed in the latter half. Finally, macroeconomic forces, including higher energy prices and geopolitical conflict, have strengthened long-term investor interest in alternative energy sources and overall energy independence. VC and growth equity both had their second-largest fundraising year on record, cumulatively accounting for more than 50 percent of PE fundraising for the first time. Counterintuitively, manager selection mattered less in 2022 than in years past: the interquartile spread of returns of PE funds narrowed in 2022 to 21.6 percent from the prior ten-year average of 33.8 percent. ASIAN BUSINESSES RIPE FOR PROFESSIONALIZATION The definition of infrastructure and natural resources continues to expand, with todays funds now taking more equity risk than yesteryears did. Deal volume fell 20 percent, declining in each consecutive quarter throughout the year (Exhibit 5). Download the Complimentary Report. Another prevailing theme for the upcoming months to grow in significance will be digitalization. As measured by year-to-date IRR as of September 30, 2022, for global funds vintages between 2000 and 2019. Morgan Stanley Investment Managements 1GT Co-Leads $50 Million Funding for Everstream Analytics. Even in 2020, when activity stalled briefly during the early months of the COVID-19 pandemic, private markets hummed again in the second half. This trajectory led to faster adoption; based on data from 1997-2015, unicorn status Chinese Internet startups took an average of four years to reach their $1 billion valuationversus seven years for their U.S. counterparts. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia. These disruptions had substantial and varied impacts on private markets fundraising, performance, and AUM growth, with steep declines in certain regions and strategies, and pockets of resilience in others. Real estate (23 percent) and private equity (15 percent) declined most precipitously from 2021s record highs, while private credit (+2 percent) proved more resilient. Investing in Asian private equity comes with a unique set of challenges and risks beyond what this paper has explored. Morgan Stanley does not render tax advice on tax accounting matters to clients. This material is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. While Asian private equity can be a difficult segment to diligence and access, MSIM believes that its 20+ year history investing in private equity funds and opportunistic investments in Asia, combined with the broader resources of Morgan Stanley, can help bridge this knowledge gap.1 MSIMs upcoming series on Why Invest in Asia Private Equity? will look to demystify the opportunity, starting out with The Case for Outperformance, which explores some of the drivers of outperformance including accelerated growth/leapfrog potential, valuation arbitrage, and the opportunity for company-level professionalization and efficiency improvement. The diversity of strategies within private debt also helps explain its consistent growth. Just 2,141 funds were closed during the year, 1,600 fewer than in 2021 and the fewest of any year since 2013. More than three-quarters of firms (77%) say they are planning to exit their portfolio companies, marking an increase from last year (66%). APAC investors are the most enthusiastic at 91%. SPACs are playing a new role in the market dynamics, particularly in the U.S. In Europe, an 11-year run of fundraising growth ended, largely due to geopolitical instability and broader macroeconomic challenges, including volatility in foreign currency exchange rates. Global PE performance turned negative for the first time since 2008, posting a 9 percent return through September1As measured by year-to-date IRR as of September 30, 2022, for global funds vintages between 2000 and 2019. and ending a five-year run as the highest-performing private asset class. For illustrative purposes only. 37 How are increasing LP sophistication and diversification shaping the industry and the types of services GPs need to offer? Yet, like most private market segments, real estate experienced a downturn in 2022 compared with the record year it followed. However, the overall number of firms not considering ESG factors when looking for new investments remained unchanged from last year at approximately 20%. By Cameron Joyce, CFA and Michael Patterson. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association. The pattern in 2021 and 2022 was no different: despite rising US Treasury (UST) rates, cap rates decreased and values rose. 12 Weforum.org How reform has made Chinas state-owned enterprises stronger October 2020. of the securities, and MSIMJ accepts such commission. www.preqin.com, [4] S&P Capital IQ Pro Platform (as of 27/01/2022). To date, top-line revenue growth has been the largest contributor to Asian PE returns.11 This is unsurprising, given that until recently growth has been easy to come by in Asian markets, making efficiency (and hence margin) improvement less of a focus. Almost 17% of PE professionals from that region anticipate the investment landscape will deteriorate in 2022. Sustainability-related deals (the E) increased by 7 percent to nearly $200 billion, proving resistant to the deal-making headwinds that affected other asset classes. (As of 31/01/2022). In office, for example, net absorption turned positive as attendance rates seemingly reached a new equilibrium. Venture capital assets under management tripled between December 2016 and March 2021, from $574bn to $1.68tn. 2022 is likely to be an active year for private equity exits, and many investors are preparing to divest their portfolio companies. We work with ambitious leaders who want to define the future, not hide from it. Vikram Raju discusses five key findings from COP27. 'Private Capital' will refer to the broader spectrum of private closed-end funds, including private equity, private debt, private real estate, infrastructure and natural resources. 9 Source: AVCJ, data as of September 30, 2022. For those that can identify and partner with such private equity managers, there exists a promising opportunity for outperformance in the region. (As of 09/09/2021). MSIM, the asset management division of Morgan Stanley (NYSE: MS), and its affiliates have arrangements in place to market each others products and services. For the fifth consecutive year, S&P Global Market Intelligence conducted an annual survey among PE and VC practitioners to measure industry outlooks for the upcoming 12 months. www.capitaliq.spglobal.com, [5] Investing in the next generation of healthcare opportunities. Most of the current fund commitment decisions were made last year, which was impacted by the denominator effect as public markets . Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. For real estate, 2022 was a year of relative highlights and challenges, with previously-struggling sectors finding stability, and top-performing sectors slowed by tailwinds. PE/VC firms considering investment in the Consumer sector plan to focus on the Consumer Retail (24%) and Consumer Producers sub-sectors (18%), while taking rather a cautious approach to Consumer Leisure (8%). Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. Its our market overview from Bain & Companys 2022 Global Private Equity Report. [13]In terms of exit methods, trade sale will still be the most preferable route, attracting a third of respondents (32%) versus a quarter last year. Alle Morgan Stanley Investment Funds anzeigen, View All 1GT: Climate Investing Reinvented. Companies with cutting-edge tech and design can be positioned for Asia and/or global expansion and sold at a premium valuation. Macroeconomic events had mixed impact across sectors: rising oil and gas prices drove a resurgence in demand for traditional energy investments, while growth in renewables fundraising continued amid the multiyear push toward decarbonization. But ESGs growing impact on private markets goes beyond just dedicated funds and deals: most funds (of any strategy) now consider ESG risk factors in due diligence, and some explicitly include ESG concepts in their value creation plans. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.16% per annum (including tax)) shall be incurred in proportion to the contract period. Similarly, Australian software companies can be invested in at modest high single-digit/low double-digit EV/ EBITDAs and sold on to global strategics at premium double-digit EV/EBITDAs. From a GPs perspective, effecting operational change requires more effort and a specialized skill set, as well as significant influence on a company which is often lacking in minority stake deals (the predominant deal type in much of Asia). Open-end funds in the US grew NAV by 24 percent, with contributions exceeding distributions for the first time in two years. Australia: This material is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. MSIM's affiliates are: Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd, Calvert Research and Management, Eaton Vance Management, Parametric Portfolio Associates LLC, and Atlanta Capital Management LLC. Information regarding expected market returns and market outlooks is based on the research, analysis, and opinions of the investment team of the Private Markets Solutions Team. [14] S&P Capital IQ Pro Platform (as of 14/02/2022). . Morgan Stanley Investment Management (MSIM) views private equity in Asia as a potential bright spot for investors that offers the opportunity for outperformance, particularly at the current juncture. Alternative investments typically have higher fees and expenses than other investment vehicles, and such fees and expenses will lower returns achieved by investors. Outside the EU, MSIM materials are issued by Morgan Stanley Investment Management Limited (MSIM Ltd) is authorised and regulated by the Financial Conduct Authority. Indeed, real estate performance has exceeded inflation in six of the last seven inflationary periods, in part due to cap rate compression even during a rising interest rate environment. Anecdotally, as little as five years ago, many businesses in the region managed trucking logistics via paper on a clipboard. Tech-focused buyout funds performed worse than other buyout funds for the second consecutive year, and venture capital (VC) underperformed buyout strategies for the first time since 2017. SCARCITY VALUE DRIVES SIGNIFICANT EXIT PREMIUMS (As of 13/01/2022). While Asian private equity can be a difficult segment to diligence and access, MSIM believes that its 20+ year history investing in private equity funds and opportunistic investments in Asia, combined with the broader resources of Morgan Stanley, can help bridge this knowledge gap. AUM ascended higher, as it has in every year since the global financial crisis, to $7.6 trillion. EY. This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Pontus Averstad, Alejandro Beltrn, Marcel Brinkman, Paul Maia, Gary Pinshaw, David Quigley, Aditya Sanghvi, John Spivey, and Brian Vickery, representing views from McKinseys Private Equity & Principal Investors Practice. research Fundraising hit a new record in 2021 with established fund managers riding the wave. At the same time, deal volume grew by 41.6% over 2020, proving that investors predictions of improved deal-making in 2021 came to fruition. There are also pockets where capital supply/demand dynamics remain reasonable, resulting in attractive entry valuationse.g., in Thailand, there is a paucity of PE managers facilitating investment opportunities in high quality, growing companies. Going into 2022, PE/VC investors are mainly concerned about the changes to the economic environment. Changes in consumer behavior is no longer one of the top five factors of concern, decreasing to 17% this year from 26% in 2021%) as firms now have a better gauge of consumer reactions to the pandemic and have adjusted their strategies accordingly. Conversely, dollars raised by sub$5 billion funds decreased by 28 percent. PE buyout entry multiples declined slightly in 2022, falling to 12.9 times EBITDA from a record 13.2 times a year ago, while public market multiples compressed dramatically, declining to 12.0 from 14.6 times EBITDA. In 2022, mezzanine strategies were most in favor, posting record fundraising totals and more than tripling 2021s haul. Please read and agree to the Privacy Policy. Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. Report is also available in Chinese, Japanese and Korean upon download. Going into 2022, PE investors remain largely bullish on the investment activity outlook. Funds over $5 billion collected a record $445 billion in aggregate, a 51 percent increase over funds of a similar size in 2021. Investor strategy is backed by robust numbers: in 2021, IT accounted for nearly half of total deals completed (46%) and a third of total deal value (37%). All investment profits and losses belong to the clients; principal is not guaranteed. 8 Source: Bloomberg, data as of February 28, 2023. After more than a decade of rapid fundraising growth, strong macroeconomic headwinds slowedbut did not stopprivate debts growth. 2022 will prove to be the best year yet for ESG-focused fundraising, with $24 billion raised through the first half of the year. Retrieved from: https://www.ey.com/en_us/private-equity/pulse, [10] Key Trends that will drive the ESG agenda in 2022. Geographically, 45% of respondents were from Europe, 19% were from North America, 15% were from APAC, 8% were from the Middle East & Africa and 13% were from Latin America. FT Adviser. Private market valuation refers to round size, as determined by capital invested divided by no of deals. Each region benefited from an investment spree, with Latin America (LatAm) and North America (NA) witnessing the highest uptick in aggregate deal value year-on-year. Registered No. 10 Morgan Stanley Research, Investor Presentation India Banks, November 11, 2022. For example, while China tech was initially a copycat play, Chinas Internet sector has surpassed the U.S. in several areas (e.g., mobile payments, online shopping). Bookmark content that interests you and it will be saved here for you to read or share later. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. This publication has not been reviewed by the Monetary Authority of Singapore. The 2022 Preqin Global Alternatives Reports are the most complete and in-depth annual reviews of private equity, venture capital, private .
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