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More investors turning to private markets

Yasmine Masi10 January 2024
Businessman holds graph

New data from private markets investment manager, Hamilton Lane, found the traditionally lucrative asset class has delivered strong returns for both institutional and high-net-worth (HNW) investors.

The figures showed private equity generated 10-year returns of 15.1 per cent, compared to 11.8 per cent for public equities, 9.5 per cent for real estate and 4.2 per cent for fixed income over the past decade.

Drew Schardt, Vice Chairman, Head of Investment Strategy & Direct Equity at Hamilton Lane, said this comes after new private markets funds with lower minimum investments made it much easier for a broader pool of investors.

“People are feeling generally better about the investable universe and new normal particularly as there is more clarity around interest rates. It doesn’t mean there won’t continue to be choppiness, but I believe investors are feeling more positive about the current macro-economic environment – certainly risks from geopolitical and other major events around the world still remain.

“The sentiment that I’m hearing from most investors… is that people are looking to find ways to turn the dial to ‘risk-on’ a bit more so than where they were just 12 months ago. As a result, we’ve seen investors continuing to lean into private market asset classes.

“At the same time, … the private markets have become more accepted, more understood. People are a bit more comfortable with the private markets, the performance expectations, and just understand the asset class a bit better overall.”

Schardt said the popularity of private equity has soared as the market conditions force investors to ride the volatility wave by considering long-term approaches.

“What’s really changed is thoughtfulness around portfolio construction and having more of a top-down view. ‘Should I mix in infrastructure, private credit, other strategies, secondary transactions, for example, that have different risk return characteristics, also in terms of liquidity and duration.’

“Private equity succeeds because it historically performs well over longer, more volatile periods. Decision making is focused on long-term value creation, not short-term swings. One reason is that boards of directors at private companies tend to be more empowered.

“For example, it’s not unusual for a private-equity-backed board of directors to swiftly make management team changes when required, while among publicly traded companies, this is rarer.”

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