PE is expected to win the market trend again in 2022. Fund sponsors would raise more investors they are comfortable with. But Inflation and interest rates are PE’s strongest enemies. Pricing power firms can excel better than startups. Higher rates can bring disruption to leveraged buyouts. Business could face wage pressures, problems in supply chain, and Covid-19 uncertainty.
Now, everyone’s focus is at growing underlying profits to yield return on the same or lower multiple. The trending interest themes are energy transition and health-care technology. Choosing the right theme and right firm can contribute to better valuations. Many would disagree with David Swensen. Between believing his own word or not, he remarked that today’s wrong possibility can somehow lead to higher or longer valuations.
In addition, Swensen argued that best private funds could contribute to economic disruptions. Private funds ride over distressed assets. But based on The Economist analysis, the idea of private markets being greedy and can profit accordingly might be wrong. BIS’s Sirio Aramonte and Fernando Avalos studied and found that capital deployment in PE and debt are correlated with stock market returns.
Despite of the debate, long or short term private markets are getting permanent winner at global finance. During the decades of yield hunting, PE has expanded and matured. Products are engaging. A secondary market is attractive. So, more investors including retail investors are convenient with them.
PE is eyeing Asian conglomerates like Hitachi and Panasonic. So far, PE has projected Asia and Europe as its most fertile ground for PE. Private markets’ emergence is an alternative to public ownership. If it grows bigger, greater choices and investors will soar for better capitalism.
