PitchBook’s latest report on private markets has some promising figures for participants.
The data provider expects private markets to grow at a 5.7% compound annual rate from US$20.3 trillion last year to $26.7 trillion in 2030.
That said there are complexities and nuances to the picture. For instance, secondaries are expected to more than double from $700 billion in 2025 to $1.5 trillion in 2030. Funds of funds, by contrast, are expected to shrink from some $900 billion to $600 billion.
Also, as the report notes, no matter how relatively benign a 5.7% compound growth looks, it’s below historical growth rates. This represents a maturation of private markets, but also the ebbing of tailwinds which have historically propelled them to much higher growth.
“For nearly four decades, private markets operated with a powerful and largely invisible tailwind: the secular decline in interest rates,” PitchBook says. This decline went from a nearly 20% US interest rate in the early 1980s to practically zero through the 2010s.
As a result, debt was cheap, asset values grew, discounts fell, and multiples expanded.
Macroeconomic shifts since the pandemic, and especially the interest rate rise from 2020 have “reshaped the economics of private capital investing”, according to PitchBook. The resulting pressures have weighed on transaction volumes, fundraising and, above all, distributions.
Further headwinds over the past two years include tariffs, rising geopolitical tensions, inflation, supply chain upsets, and conflicts, especially in the Middle East. All these ramify a tough environment in which “operational value creation rather than financial engineering will separate top managers from the rest”,” the report says.
Given that operational value creation was always so high among the publicity and fundraising rhetoric of private equity leaders in the last cycle, it will be interesting to see how that story plays out. Actual value creation rather than voluminous leverage will increasingly separate top managers from the rest.
According to a recent research note, also from PitchBook, “capital concentration is no longer a cyclical phenomenon but a structural reality”. Capital is consolidating around an ever-shorter list of the largest established managers.
“Operational alpha is now the only alpha”, the note adds, citing near term one- and three-year internal rates of returns averaging 7% versus long run medians above 13%. “The era of leverage-driven returns and multiple expansion is over.”
But private equity, throughout most of its breakneck growth phase, knew almost nothing but leverage-driven returns. That subset of private markets at least looks to be in for a very big reset.
