A recent white paper by Steffen Meister of Partners Group predicts that private market assets under management (AUM) will grow from $10 trillion in 2020 to $30 trillion in 2030. Private markets saw AUM grow by approximately 3x in each of the two previous decades, starting in 2000 when AUM stood at $1 trillion.
The exponential growth of private markets has come at the expense of public markets, amid a multi-decade trend toward private ownership. Notably, in each year since 2016, private market fundraising has surpassed capital raised in the public markets, often exceeding $1 trillion. As shown in the graph below, private markets have established a commanding lead over the public markets in capital raising.
As the Partners Group white paper points out, transactions up to a value of $10 billion — comprising most businesses and assets in the world — can typically be financed by private markets, providing attractive alternatives to the traditional IPO.
Moreover, the private equity model for entrepreneurial governance has generated superior value creation to public company governance. Under this so-called entrepreneurial governance model, executives can focus on strategic value creation under the oversight of more specialized, hands-on owners, with a longer-term focus. Consequently, private equity outperformance is driven to a greater degree by growth in cash flow compared to public companies, as shown below.
Private equity outperformance has been less reliant on multiple expansion than public markets. As we noted in a previous note, private equity fund valuations have been much more resilient than public markets. While the S&P 500 closed 2022 down 19%, the largest PE managers performed significantly better, with Apollo and Blackstone posting gains over the same year.
It’s worth noting that returns for the S&P 500 are extremely concentrated on a small set of tech names. According to an April 28, 2023 report by SocGen, the top 10 stocks, mostly Big Tech names, accounted for 86% of the S&P 500’s year-to-date performance.
It’s therefore not surprising that Partners Group sees private markets assuming the preeminent role as the financing engine for the real economy. Although on the surface its prediction of $30 trillion in private market AUM by the end of the decade seems to be quite bold, the underlying assumptions seem reasonable, if not, conservative. Specifically, a recent survey by research group Prequin predicts that private markets will grow by a compound annual rate of 11.9% over the next five years, based on target allocations of institutional investors. On the other hand, the $30 trillion in private market AUM figure doesn’t consider increased participation by non-institutional investors, segments that are already adding private market assets at greater rates than institutional investors.
