Private Capital Market Update
25 March 2019, Miami
Sola Akinola
Director of Research
9th Annual Global Fund Finance Symposium
www.preqin.com
Clients include over 60,000 industry professionals from 16,000 firms
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Data available via online databases, publications and research reports
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Private Equity & Venture Capital | Hedge Funds | Real Estate | Infrastructure | Private Debt | Natural Resources
About Preqin
Overview of Alternatives in 2018 Where Are We Now?
www.preqin.com
Global Private Capital AUM at a Record High - $5.8tn
1,720 1,792 1,936 2,177 2,227 2,367 2,5613,060
3,411322 357
388457 466
543600
665
769
445550
587
701 744801
778
813
909
166211
221
271 291317
377
448
491
95110
133
167 180190
226
231
246
0
1,000
2,000
3,000
4,000
5,000
6,000
Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18
AU
M ($
bn)
Assets Under Management by Asset Class: 2010 - H1 2018
Private Equity Private Debt Real Estate Infrastructure Natural Resources
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Private Capital Fundraising ‘Slows’ in 2018: $824bnRaised
246350
407 410
213 186239 243
328420 415
495573
45722
39
74 100
24 4245 66
76
79 103
112
134
121
81
104
141147
53 58
7788
109
122140
131
132
134
10
25
4441
15 33
2730
49
4656
67
75
92
7
26
1418
21 13
11 30
35
3244
27
22
20
0
100
200
300
400
500
600
700
800
900
1,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Agg
rega
te C
apit
al R
aise
d ($
bn)
Annual Aggregate Capital Raised by Asset Class: 2005 - 2018
Private Equity Private Debt Real Estate Infrastructure Natural Resources
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Steady Trend of Capital Flowing to Top Managers Signaling Increased Capital Consolidation
7% 6% 6% 5% 4% 5% 4% 3% 3%
30% 29%24%
21% 21% 23% 22% 19% 18%
18% 21%
18%15% 18% 14% 19%
15% 16%
20%24%
26%
21% 22% 21% 16%21% 21%
26% 21%27%
37% 35% 37% 39% 41% 43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Percentage of Aggregate Capital Raised by Fund Size: 2010 - 2018
Less than $100mn $100-499mn $500-999mn $1-2.5bn $2.5bn+
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$1bn+ Funds Account for Over Half of All Capital Raised in 2018
4% 3% 1% 1%
20% 24%17%
8% 10%
15%21%
20%
11%18%
19%
27%
24%
21%
17%
43%
25%38%
60%54%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Private Equity Real Estate Private Debt Infrastructure Natural Resources
Percentage of Aggregate Capital Raised by Fund Size in 2018
Less than $100mn $100-499mn $500-999mn $1-2.5bn $2.5bn+
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No Signs of Slowing Deal Activity
0
100
200
300
400
500
600
700
800
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Valu
e ($
bn)
Deal
Cou
nt
Global Private Equity Deal Activity: 2005 - 2018
Number of Deals Aggregate Deal Value ($bn)
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524 631 678 671 614 594 557669 681 743 830
1,0261,21370
97 110 103 112 125 129
187 171210
215
246
307
129
165168 176
149 160 134
200 194228
237
281
323
37
6667 66
70 8573
105 101104
145
158
179
28
3443 39
37 36
50
65 7577
82
69
77
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
Dry
Pow
der
($bn
)
Private Capital Dry Powder: 2006 – H1 2018
Private Equity Private Debt Real Estate Infrastructure Natural Resources
3.02.3
3.2
4.3
2.6 2.5 2.23.0
2.3 2.3 2.3 2.1
Ratio of Year-End Private Equity Dry Powder Levels to Prior-Year Total Capital Called: 2006 - 2017
Private Capital Dry Powder Exceeds $2tn
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Asset Valuations Represent the Biggest Challenge for Return Generation in 2019
68%
38%34%
28%
22%
17% 17%
8%5%
1%
63%
35%38%
23%27%
35%
13%
8%
13%
7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Asset Valuations Competition forAssets
Exit Environment Rising InterestRates
Stock MarketVolatility
GeopoliticalLandscape
Deal Flow Regulation Currency MarketVolatility
CommodityMarket Volatility
Prop
ortio
n of
Res
pond
ents
Views on Key Challenges for Return Generation in 2019:Investors vs. Fund Managers
Investors Fund ManagersSource: Preqin Fund Manager and Investor Surveys, November 2018
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More Capital + Fewer Assets = Expensive Deals
52 52 76 72 77 74 72 79 67 79 88 90 136
316
558
454
122
66
140
139
141 22
2
225 25
4
264
360
2,833 2,805
0
100
200
300
400
500
600
700
0
500
1,000
1,500
2,000
2,500
3,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Valu
e ($
mn)
Deal
Cou
nt
Global Private Equity Deal Activity: 2005 – H1 2018
Average Equity Value ($mn) Average Debt Value ($mn) Total Deal Count
~75/25
~85/15
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Private Capital Distributions Continue to Outstrip Call-Ups
-500
-300
-100
100
300
500
700
900
1,100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
Capital Called Up vs. Distributed: 2005 - H1 2018
Capital Called up ($bn) Capital Distributed ($bn) Net Cash Flow ($bn)
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Private Equity Net Cash Flows Showing Signs of Weakening?
-200
-100
0
100
200
300
400
500
600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 2018
Private Equity Capital Called Up vs. Distributed: 2005 - H1 2018
Capital Called up ($bn) Capital Distributed ($bn) Net Cash Flow ($bn)
Investors
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Over 11,000 Institutional Investors Active in Alternatives Today
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Private Capital Largely Delivering for Investors
6%
8%
10%
12%
14%
16%
18%
20%
6% 7% 8% 9% 10% 11% 12% 13% 14%
Risk
-St
anda
rd D
evia
tion
of N
et IR
R
Return - Median Net IRR
Private Capital: Risk/Return by Asset Class (Vintages 2005-2015)
Private Equity Private Debt Real Estate Infrastructure Natural Resources
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17%
45%
47%
59%
0% 20% 40% 60% 80%
No Benefits
Competitive Advantage
Reduce AdministrativeBurden
Cash Flow Management
Proportion of Respondents
Perceived Benefits of Fund Credit Facilities
Investor Views on Subscription Credit Facilities
10%
14%
15%
22%
27%
42%
59%
0% 20% 40% 60% 80%
Legal Risk
Tax Considerations
No Concerns
Clawback Issues
Liquidity Risk
Additional Expense
Fund PerformanceComparability
Proportion of Respondents
Concerns Regarding Fund Credit Facilities
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Increased Adoption of Subscription Credit
37%29% 30% 29%
21%9%
37%38% 37% 36%
40%
46%
1%4% 2% 4% 6% 14%
25% 30% 31% 32% 33% 31%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2013 2014 2015 2016 2017 2018
Credit Facility Use of Buyout Funds with a Vintage of 2013 – 2018
Not disclosed Not used - no plans use Not used - may use at a later date Yes
45%
Where do we go from here?
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Preqin Predicts Alternative Assets Growth to continue - $14tn by 2023
3.1tn
6.5tn
9.5tn
14tn
2008 2013 2018 2023 Projection
Projected Growth of Alternative Assets Industry
79%
20%2%
Private Equity
DecreaseAllocation by2023
MaintainAllocation by2023
IncreaseAllocation by2023
Driven by strong investor appetite for private equity over the next 5 years
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The Role of Alternatives in a Low Return Environment
10% 9% 16% 9%26%
71% 75% 57%78%
57%
19% 16%27%
13% 17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Private Equity Real Estate Private Debt Infrastructure Natural Resources
Investor Views On Portfolio Performance Over Last 12 Months
Fell Short of Expectations Met Expectations Exceeded Expectations
Equity Cycle Impact on Private Capital Investments
Where are we in the current Equity Market Cycle
How to be Part of the $14n Alternatives Industry in 2023?What you should be thinking about today to be part of the growth of tomorrow
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Record Number of Private Capital Funds in Market Targeting $1.5tn
1,561 1,6191,845 1,949 2,098 2,235
2,6512,965
3,342
4,967
699 607 758 797 733 793 946 1,0081,206
1,523
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Private Capital Funds in Market: 2010 - 2019
No. of Funds in Market Aggregate Capital Targeted ($bn)
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Understand Investor Plans for Routes to Market in the Next 5 Years
13%25%
39%
24%
42%34%
45%15%
28%
11%
17%
4%
FundManager
Investor FundManager
Investor FundManager
Investor
Pooled Funds Separate Accounts Co-investments
Routes to Market
Increase Decrease
§ 84% of institutional investors plan to increase their allocation to alternatives in the next five years
§ Agreement on the opportunity in the co-investment space
§ Managers may be overestimating the shift out of pooled funds
0
100
200
300
400
2012 2013 2014 2015 2016 2017
Fund
Cou
nt
Separate Accounts
SMA Funds
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Fund Managers May Need to Move Faster to Improve Diversity
§ 56% and 60% of investors and fund managers respectively believe a diverse workforce is beneficial to achieving investment objectives
§ Over a quarter of investors either have or plan to have a diversity policy in place for hiring investment managers in the next five years
Investors with Diversity Policies in Place for Hiring
Investment Managers
Fund Managers and Investors with Diversity Policies in Place
for Their Workforce
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Women in Private Equity
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The Future of Alternatives
§ Private Capital reached record levels of AUM in June 2018: $5.8tn.
§ Increased competition (Capital Consolidation) pressures Managers to differentiate.
§ Record levels of capital and crowded market leading to increased competition for deals = inflated valuations.
§ End of cycle? Strong relative returns of Private Capital more important than ever.
§ We expect alternative assets AUM to hit $14tn in 2023 – but given the tailwinds could go higher.Ø Driven by an evolving ecosystem of investors seeking yield and to diversify risks in portfolios
§ ESG, Diversity and Technology will continue to have significant impacts on the industry.
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Further Information
Sola Akinola, Director of [email protected]
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