We often hear that the world is changing at an accelerating rate. Technological change is probably first and foremost in people's minds when they consider fundamental changes to the ways they do business. But there is another force at work behind the scenes in the way companies are increasingly turning toward a large and growing pool of private capital for their equity financing. How large?
Traditionally, the largest segment of the private market has consisted of "conventional" private equity (defined as sponsored-managed funds principally dedicated to control transactions and venture capital funds). The assets under management (AUM) in the conventional category have been growing at an annual rate in excess of 7% for over a decade, reaching a current level of about $2.6 trillion1.
For comparison, the entire S&P 500 – at the time of writing – is about $24.5 trillion, meaning conventional private equity is about 11% of the index.2 Despite the growing popularity of alternative asset classes such as private debt, real estate and infrastructure, conventional private equity still accounts for more than half of both fundraising activity and AUM, making it the largest single asset class within the private markets.3
It is not just private equity capital’s impressive growth that matters. Its relevance to Boards and CEOs lies more in how private capital is expanding its traditional horizons, becoming more multi-strategy, more global and – in some cases – much more long-term. As the asset class matures, the diversity of the businesses in which it invests – and how – will continue to evolve and create opportunities for more and more companies to tap into this burgeoning pool of capital.
The "tool box" of private capital available to enable transactions plus the speed and ease of deal-making in (and the depth of) private markets can make the public market options at times less attractive. In fact, the number of publicly-listed companies in the U.S. market has dropped by 20% over the past 10 years, and by 50% over the past 20 years.4
In this paper, the tenth in our ongoing series of Credit Suisse Corporate Insights, we describe and analyze different pockets of private equity capital and evaluate how developments in their respective investing landscape are driving changes to this market. In the last ten years private equity has evolved to encompass a significantly broader group of investors. Importantly, we examine how this large and growing pool of capital can provide valuable solutions to corporations that public markets may not be able to match.
1 Source: 2018 Preqin Global Private Equity & Venture Capital Report, Credit Suisse calculations.
2 FactSet as of June 25, 2018.
3 In 2017, private equity accounted for 60% of fundraising activity and 57% of AUM. Source: 2018 Preqin Global Private Equity & Venture Capital Report.
4 Michael Mauboussin – "The Incredible Shrinking Universe of Stocks", 2017.5