Private equity firms now manage commitments of nearly US$3.4t globally, up from less than US$500b in 2000.

This shift and its impact on the dynamics of the funding landscape is analyzed in the new research paper, A new equilibrium: PE‘s growing role in capital formation and the critical implications for investors, a joint collaboration between EY and the Institute for Private Capital.

“In today’s capital markets, there is a measure of stagnation in the public markets, where listings are increasingly dominated by larger, more mature companies,” says Greg Brown, Professor of Finance, UNC Kenan Institute of Private Enterprise. “At the same time, the last decade has seen widespread experimentation with a wide range of new private capital vehicles and investment models that are able to provide funding to a broader array of companies than ever before, at nearly all stages of their life cycles.”

The research highlights the evolution of private equity (PE) funds in the last two decades, from commingled buyout and venture funds, and their innovation into a wide array of vehicles that have opened the investible universe, to entirely new types of businesses. As a result of the changing dynamics, the report raises questions and analyses a number of important drivers of this shift including: the growing investible universe for private equity, current and new sources of capital, new segments of growth and impacts associated with the shift in methods of funding, and the factors driving the decline in number of public companies.

The report finds there is still room for growth in the traditional markets of US and Europe. Additionally, emerging markets represent a high potential growth opportunity, as the penetration levels of private capital are much lower. Further growth opportunities lie in areas that have traditionally been outside the purview of PE funds, such as private credit and real assets.

As pointed out by Andres Saenz, EY Global Private Equity Leader, for a wide range of capital markets stakeholders, the implications are significant, as more and more of our economic growth occurs within the realm of private capital. “The last 20 years has seen the industry build proven models for investment and innovate a wide array of products that appeal to a growing number of investors. In many ways, the next 20 years will be about how PE firms manage the consequences of their success, as they expand into new domains,” he said.

Image by Gerd Altmann

Related Articles