Preqin has just released its Future of Alternatives 2029 report, forecasting the future fundraising, performance and AUM growth prospects for the alternatives asset classes over the next six years. It’s a decidedly mixed picture, particularly for private equity. Lower annualised growth in alternatives as a whole of 9.7% over the forecast period from the end of 2023 to 2029, down from 10.5% during the 2017-2023 period, is attributed by Preqin to “softer expectations for the private equity and venture capital markets”.
As per Preqin’s analysis, the overall private equity AUM is forecast to more than double by 2029 from its current c. US$5.8 trillion to reach $11.97 trillion, representing an annualised growth rate of 12.8%. According to these predictions, private equity assets should comprise some 6% of both public and private equity markets by the end of 2024. However, average performance expectations for the asset class and its various sub-classes will be lower. Preqin expects the average internal rate of return for global private equity over the next six years to fall to 13.4%, compared to 15.5% for the 2017-2023 period.
Venture capital, meanwhile, is forecast by Preqin to reach $3.59 trillion by 2029 from $1.85 trillion in 2023, with early-stage VC likely to experience the strongest annualised AUM growth over the period at 13.2%, followed by general venture capital at 11.1%, and late-stage VC at 8.1%.
The poor exit market that is dragging down most of the sub-asset classes, but especially late-stage VC, is one of the factors propelling secondaries to “the fastest-growing area of alternatives from the end of 2023 to 2029”, according to Preqin, with an annualised growth rate of 13.1%. All the factors previously mentioned behind the momentum in secondaries, including LP demands for liquidity and stalled IPOs, are at work behind this figure.
Preqin cites the growth in private wealth interest in private assets as a major driver behind the growth in AUM. Cameron Joyce, global head of research insights at Preqin, notes that “individual investors’ access opens up, as the private wealth channel’s growth continues to gather pace”. According to Preqin, private wealth overall is underexposed to private equity, and is moving to correct that deficiency.
That’s just as well for the industry, given the lower performance expectations, as well as the “challenging” macro environment and “geopolitical risks” cited by Preqin. Tighter regulatory scrutiny of M&A, slack IPO markets, and high asset valuations are all contributing to the drag on exits and on performance as a whole.
All the same, Preqin expects the overall proportion of private versus public assets to grow over time, driven by “private companies staying private for longer, take-privates, lacklustre IPO markets, and an overall decline in the number of listed companies over time”. With the lower performance of private equity as a whole, you have to wonder if that’s really a positive development.
