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The private capital industry exceeds $7 trillion


The private capital The industry has grown to more than $7 trillion thanks to the demand for higher-return but expensive and opaque strategies, spurring the likes of Schroders and JPMorgan to launch new divisions and send others to seek acquisitions.

Although the traditional asset management industry continues to dwindle — which invests primarily in the public equity and bond markets — explosive growth in areas such as private equity has pushed the overall private capital industry to $7.4 trillion at the end of 2020, according to the Morgan Stanley. The bank expects to reach $13 trillion by 2025.

Private capital is now growing fast As a cheap passive investment that tracks indexes, which has prompted several large asset management groups to expand their operations in the region to counter earnings pressures on traditional investment methods.

Schroders, the UK’s largest listed investment group, earlier this week announce It will consolidate all instruments of private capital into a new entity called Schroders Capital. Barclays noted that at an investor event, it also pledged to double the size of those assets to £86 billion by the end of 2025.

“Platforms will be key to what I call the ‘manufacturing’ of private markets,” said George Wunderlin, global head of Schroders Capital. “We may be 15 years behind the public markets, but the industry is maturing in a similar way.”

JPMorgan Asset Management also created a new division this week called JPMorgan Private Capital to house its operations in the field, while other investment groups said they are looking for acquisitions to start their business.

“It’s something we’re evaluating,” Robert Sharps, T Rowe Price’s president and chief investment officer, said at the company’s annual shareholder meeting last month. “The trend towards greater allocation of illiquid strategies and private assets among many of our clients is not something we are losing out on.”

Industry insiders say the biggest drivers of appetite for private capital investments are the low interest rate environment and high stock market valuations, which have weakened Outlook for future returns of these asset classes. At the same time, private markets are less volatile because they only trade rarely and valuations can be more subjective, an opacity that actually increases their luster for many investors.

Morgan Stanley analysts noted in a Thursday report that many investment groups, under pressure from the explosive popularity of cheap and passive money, are a huge boon.

“For traditional asset managers, fees will be relatively difficult to defend given the commoditization of the industry and current margin challenges,” the report noted. “As a result, we expect traditional asset managers to use these leverages more to defend existing revenue pools while leaning toward alternatives with a fatter fee set and private markets with their higher structural growth.”

private property It’s still the bulk of the private capital world, with more than $3 trillion in assets, but it’s growing more slowly than areas like private credit, funds that circumvent banks and provide loans earmarked directly to businesses and infrastructure.

However, the fastest growing angle is called “justice growth‘, which typically involves investing in companies that are too large to benefit from traditional venture capital firms, but are unwilling to go public or sell them entirely to private equity.

Growth accounted for 14 percent of the private equity industry at the end of last year, up from 5 percent in 2005, according to Morgan Stanley. JPMorgan Asset Management said earlier this week that it had taken Christopher Dow of Goldman Sachs to lead a new equity investment arm, as part of its broader push into private capital.

“Growth equities and private debt are among the fastest growing asset classes in the alternatives industry, with strong demand from both retail and institutional investors to outpace public markets,” said Brian Carlin, CEO of newly founded JPMorgan Private Capital. .

The private capital The industry has raised nearly $2.5 trillion in “dry powder” — funds earmarked for funds by investors but not yet published. This has highlighted fierce competition for attractive deals, and prompted some analysts to warn that returns cannot remain as booming as they have historically been.

Email: robin.wigglesworth@ft.com

Twitter: @robinwigg



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