The new year and decade present a period to reflect on industries’ past and future trends. Since 2010, investors have been battling with the effects of the 2008 financial crisis that left the global economy (and private equity firms) on its knees. Deals slowed down from 2007 till the 2009 tickle, with fund managers facing increased pressure from investors over liquidity risks in portfolios. But during the decade that followed, private equity (PE) transformed into a bigger and bolder space with higher returns. Here are top trends that shaped the last decade in Private Equity.
Private Equity went public
The last decade-long bull market featured a rise in private equity listings. PE was at the center of market deals, including historical mergers and acquisitions. In the past decade, close to nine firms that generally engage in private equity went public and listed on either NASDAQ or NYSE.
Most, if not all, the listing firms have two common goals – liquidity and capital acquisition. But the market has not been so kind to several new members. Out of the nine that went public over the last two decades, six are currently trading below their IPO prices.
So while the last ten years have seen a tremendous improvement in PE listings, firms have also been stripped billions of dollars in valuation.
With the growing global competition, PE firms had to be inventive in a bid to established a stable and structured way of generating income. A company that initially invested in windfall energy would invest in a company that maintains windfall equipment.
During the last couple of years, firms embarked on diversification strategies into adjacent asset classes. According to the Dechert/Mergermarket report, close to 50% of interviewed firms confirmed they plan on diversifying as a crucial strategy, while another 32% said they are likely to take that route.
The research further stated that the three common diversification asset types include private debt (27%), specialized niche segments (22%) like life sciences, and impact investing (18%).
PE firms embraced sustainability
The idea of receiving returns for your portfolio while impacting lives has been one of the most talked-about trends in the last decade. Firms incorporated social and governance (ESG) strategies into their goals while taking into accounting ethical investing.
The direct shift to responsible investing shows the growing concern for environmental challenges, such as climate change, deforestation, social inequality, and plastics pollution.
ESG focus and greater transparency in firms’ reports continue to fuel the need for ethical investing.
Also read the following article: https://charlenepedrolie.com/how-private-equity-firms-are-bracing-for-downturn/