Over the last few weeks, PEI’s journalists in New York, London and Hong Kong have been gathering predictions for 2017 from those in the know.
Here’s five we feel are the most likely. See if you agree…
1. (More) GPs will sell out.
The market for buying minority stakes in private equity firms is heating up, fuelled in part by the transition of ownership from firm founders to the next generation. Last year Silver Lake, HIG Capital and Littlejohn & Co all sold stakes to investors. The likes of Religare, Dyal Capital Partners and Goldman Sachs have been doing this for some time. Fund of funds firm AlpInvest is understood to be putting together a team, but has not yet begun raising a fund. GP Interests, a vehicle established by investment banker Mark Bradley with a target of $750 million, is thought to be nearing a first close.
2. Fund restructuring will go mainstream.
What was once seen as a failure on a GP’s part is increasingly considered a natural part of the private equity ecosystem. Liquidity solutions – in which a secondaries buyer facilitates an exit for LPs in a fund that has reached some sort of impasse – range from straightforward tender offers to more controversial and complex processes. As Yann Robard, managing partner of Whitehorse Liquidity Partners, wrote for sister site Secondaries Investor: “With the right process, right mindset and right structure, these transactions can be a very positive evolution in the market, but growing LP fatigue regarding these transactions needs to be reversed.”
3. Technology will be the new rock and roll (again).
The technology sector remains alluring for LPs keen to capitalise on tech-related growth opportunities without the risk they once may have endured for venture funds. The landscape is full of tech specialists, like Vista Equity Partners, which this year looks likely to raise the largest tech-focused fund ever, surpassing Silver Lake’s $10.3 billion 2013 vehicle. Also setting records has been tech specialist Thoma Bravo, which rapidly closed a $7.6 billion fund in October. Click here to read our in-depth interview with the firm's managing partner.
4. Fundraising may slow slightly.
The numbers are in from PEI’s data team and 2016 was – as many had already surmised – a busy year for fundraisers. The industry raised $422 billion, a marginal increase on 2015’s $420 billion. On the demand side, stock markets are on the up, so the denominator effect – where private equity exposure swells and shrinks relative to the public markets portion of a portfolio – is heading in the right direction. However, concern among LPs that high asset prices will contribute to poor vintage years may dampen enthusiasm. As for supply, early indications are that the US fundraising market will continue to be strong in 2017, according to William Charlton of Pavilion Alternatives Group, but “far fewer” European fund managers will come back to the market, with many having raised capital in the last 18 months.
5. The appeal of private equity as an asset class will prevail.
GPs get nervous when a bellwether LP like the California Public Employees’ Retirement System cuts its private equity allocation to chase yield. While rivals infra and private credit have been “on a tear” since 2010 as institutions have sought to build exposure, they will not continue to suck up capital, says Pantheon managing director Kevin Albert. “The private credit gold rush is in its eighth inning, and infrastructure’s in its fifth,” he says. Private equity will not be overshadowed.
What’s your view? Write to firstname.lastname@example.org.