Private capital strategies are set to nearly double assets under management over the next five years, according to data provider Preqin, even as the fast-growing industry adjusts to a tougher macro environment.

Private markets, encompassing private equity and private credit, have been booming over the last decade as investors chased yield during an era of fiscal stimulus and ample liquidity. Despite this year’s market routs and challenging outlook -- with borrowing costs surging and economies cooling -- demand for private capital “continues to show resilience,” Preqin said in a report Wednesday.

It expects the industry’s global assets under management to rise to US$18.3 trillion by the end of 2027 from US$9.3 trillion in 2021. The forecast envisages the compound annual growth rate slowing to 11.9 per cent in 2021-2027 from 14.9 per cent in 2015-2021.

Demand remains strong as investors continue to seek alternative sources of returns in an uncertain economic environment, according to Preqin.

“We expect to see more sustained growth in the asset classes which have historically performed well in more volatile markets, and which are able to provide inflation protection, such as infrastructure, natural resources, and private debt,” Preqin Chief Executive Officer Christoph Knaack said.

BEATING BANKS

Preqin expects a 21.5 per cent decline in global private equity fundraising in 2022 after a stellar US$561 billion performance in 2021. Private debt is also expected to grow at a slower pace, but reach an all-time high of US$2.3 trillion in assets under management at the end of 2027.

Private-debt investors have won a series of high profile deals this year, as investment banks turn cautious while the high-yield and leveraged-loan markets remain shaky. Deals for firms such as Ping Identity and Corden Pharma turned to direct lenders for funding.

North America is expected to lead the way in terms of private capital growth, at a rate of 12.7 per cent per year between 2021 and 2027, Preqin noted. Asia-Pacific and Europe trail with 10 per cent and 10.9 per cent annual increases, respectively.

Retail investors are set to be an engine for private capital, as they are still under-allocated in the asset class, according to Preqin. Larger private credit fund managers, including Blackstone Inc. and Apollo Global Management Inc., have lent into the retail market and have products that target high net worth individuals. 

“The retail fundraising drive comes as a growing proportion of institutional investors move closer to their long-term strategic asset allocations to private capital,” the report said. “Regulators in the U.S. and Europe have generally been proactive in facilitating the increased demand for retail investors into private markets.”