For illustrative purposes only. 22% of respondents say their firms are exploring digital technologies while 7% say their firms are close to making the final decision. Capital deployments into larger vehicles increased as investors re-upped with existing managers while forgoing commitments to smaller and newer managers. Going into 2022, all regions are clearly at different stages of digital technology adoption. Aforementioned challengesthe higher cost and lower availability of debt, rapidly declining public market valuations, and macroeconomic uncertaintystifled growth, activity, and performance in what had been the best-performing private markets asset class for many years running. This material has been issued by any one or more of the following entities: EMEA: This material is for Professional Clients/Accredited Investors only. All investment profits and losses belong to the clients; principal is not guaranteed. The economic effects of the pandemic continue to linger; however, as PE/VC firms have gained more experience with its impact, it has become less of a concern, dropping to second place this year (48%). By navigating unique cultural and geopolitical situations, arbitrage opportunities, and positioning companies well for exit, sophisticated GPs can capitalize on the inefficiencies of this market dynamic to buy low, sell high., Professionalization and Efficiency Improvement An Additional Source of Alpha. However, many are cautious of the growing inflation and rate hikes that may impede the unprecedented rate of investment activity. Subscribe to Bain Insights, our monthly look at the critical issues facing global businesses. Vintage years beyond 2017 have been excluded as performance is less mature and may be too early to tell. New platforms comprised 28 percent of total transactions in 2022, 14 percentage points lower than five years ago. The continued momentum in 2022 was understandable, as debts current yield and senior position in the capital stack have long made it a haven in volatile periods. In Switzerland, MSIM materials are issued by Morgan Stanley & Co. International plc, London (Zurich Branch) Authorised and regulated by the Eidgenssische Finanzmarktaufsicht (FINMA). MSIM's affiliates are: Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd, Calvert Research and Management, Eaton Vance Management, Parametric Portfolio Associates LLC, and Atlanta Capital Management LLC. As measured by year-to-date IRR as of September 30, 2022, for global funds vintages between 2000 and 2019. In terms of advanced digitization, 14% declare their organizations have advanced to the point of leveraging data science for automated deal sourcing and due diligence, while only 7% of respondents said that digital technologies have been fully implemented into their playbook. In the first half of 2022, central banks fought roaring inflation by sharply raising interest rates, and public market valuations cratered. Eine zeitgerechte Analyse markt-verndernder Ereignisse und deren Wirkung auf das Anlageumfeld. Core-plus and value-add strategies are now investing in new asset categories and infrastructure service providers as GPs seek to accommodate the return expectations of a new class of infrastructure investor. This is prepared for sophisticated investors who are capable of understanding the risks associated with the investments described herein and may not be appropriate for the recipient. This can lead to less friction as industries grow. Increasing representation across all levels will require managers to take fresh approaches to hiring, retention, and promotion. The article was edited by Arshiya Khullar, an editor in the Gurugram office. Japan: For professional investors, this document is circulated or distributed for informational purposes only. The decline was most evident in Europe and Asia, while fundraising in North America increased slightly (Exhibit 1). This publication has not been reviewed by the Monetary Authority of Singapore. By contrast, Asia-Pacific (APAC) respondents maintain the most cautious view. Like PE deal making, first-half real estate deal making continued close to the record-setting pace of the second half of 2021, but second-half volumes declined precipitously. This is up from 51% in 2021, indicating that its attractiveness continues to grow year-on-year. In Indonesia, for example, stakeholders including entrepreneurs, venture capital (VC) funds and politicians, are working in concert to pre-empt potential fintech-related regulatory issues observed in the U.S. and China, such as crackdowns in the peer-to-peer lending space. In subsequent papers, the team will go into further depth on the region, covering topics such as the opportunity for venture capital in India and the current state of private equity in China. One of real estates biggest draws for institutional investors is the long-held belief in the asset classs ability to protect real value during periods of higher inflation. This material is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. For more from Dry Powder on the report, you can listen to Three Essential Trends . Concerns over start-ups' high burn rate and limited exit options caused by a global equity sell-off have extended funds' holding periods and slowed capital distribution. A strengthening dollar accounted for a material portion of the dollar-based decline in fundraising in non-US markets. A surge in deal-making drove global private equity deal value to a total of $603 billion as of October 2021, or $804 billion on an annualized basis, which Preqin notes would surpass a record the industry set in 2007. Anecdotally, as little as five years ago, many businesses in the region managed trucking logistics via paper on a clipboard. 7 An efficient market is one where the market price is an unbiased estimate of the true value of an investment. As overall GDP growth slows, efficiency improvement will become increasingly more important. For more from Dry Powder on the report, you can listen to Three Essential Trends. Notably, 40% of respondents from North America and 26% from Europe claim that they dont face any major challenges, while only 11% of LatAm investors and 13% of Middle East investors feel the same. Real estate (23 percent) and private equity (15 percent) declined most precipitously from 2021s record highs, while private credit (+2 percent) proved more resilient. Stay ahead in a rapidly changing world. Retrieved from: https://www.ftadviser.com/investments/2021/10/07/investing-in-the-next-generation-of-healthcare-opportunities/, [6] M&A Year in Review 2021. A United Nations-supported network of investors promoting sustainable investment. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA. Private Equity & Venture Capital Net IRR from 2002-2017 by Primary Geographic Exposure Source: Preqin Pro as of September 30, 2022 . Notwithstanding these risks, a variety of factorsaccelerated growth/leapfrog potential in underpenetrated industries, opaque and attractive valuations relative to developed markets, and overlooked opportunities for improvements in operational efficiencycontribute to the regions potential for outperformance. Jim Caron, Co-Lead Global Portfolio Manager and Co-Chief Investment Officer of the Global Balanced Risk Control (GBaR) Team, shares his macro thematic views on key market drivers. 43% were Private Equity Firms, 29% were Venture Capital firms and 28% were firms doing both Private Equity and Venture Capital investments. S&P Global Market Intelligence Retrieved from: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-managers-expect-another-boom-year-in-2022-68394243, [3] Preqin Pro, (as of 07/02/2022). www.capitaliq.spglobal.com, [5] Investing in the next generation of healthcare opportunities. VC fundraising also saw an increased level of activity, with an aggregate capital raised up 23% on the previous year. [1]The study centered mostly on General Partners (GP) expectations around deal-making, fundraising, investment strategy, threats to the growth of portfolio companies, and the approach to Environmental, Social and Governance (ESG) factors. On average, 56% of respondents believe deal activity will improve in the next 12 months. Environmental issues and regulations, lack of financing and raw materials, logistics and high valuations are other topics of concern on investors minds. 8 Source: Bloomberg, data as of February 28, 2023. Private markets fundraising in North America increased by a modest 2 percent year over year but declined in Asia and Europe by 39 percent and 28 percent, respectively. [8] Multiple selections were allowed. MSIM will look to address these risks/opportunities in future briefs. After more than doubling year over year in 2021, multifamily deal volume fell 29 percent in 2022, accounting for nearly half of the asset classs overall decline in deal activity. PE returns disappointed, recording the worst year (through September 30) since 2008, and PE ended a five-year run as the top-performing asset class. LP willingness to allocate more capital to diverse deal teams is prompting more GPs (52 percent in 202122) to share DEI data during fundraising. Accordingly, save where an exemption is available under the relevant law, this material shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. esgSubNav, Discover more about S&P Globals offerings, Global Credit and Risk Symposium: Unlocking Possibilities, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-managers-expect-another-boom-year-in-2022-68394243, https://www.ftadviser.com/investments/2021/10/07/investing-in-the-next-generation-of-healthcare-opportunities/, https://pages.marketintelligence.spglobal.com/2021-Year-in-Review-Investment-Banking-Infographic.htm, https://www.ey.com/en_us/private-equity/pulse, https://www.spglobal.com/esg/insights/key-esg-trends-in-2022, https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/article?KeyProductLinkType=2&id=67618330, https://www.capitaliq.spglobal.com/web/client?auth=inherit#news/article?id=66494139, JW Marriott Sao Paulo Av. Leapfrog tech potentially has the ability to further accelerate growth, thereby offering the opportunity for outsized returns. European firms seem to lead the pack, with 27% saying they have either fully implemented digital technologies or are in the advance stages; by comparison, only 20% of North American investors are in the same stage. Here's what it means for private investors. European investors appear to have the most confidence about the industrys outlook, with 98% predicting that deal-making activity will either improve or remain the same. Banking Essentials Newsletter: 5th May Edition, Enterprise 'shippers' seek help with supply chain digital transformation, have budget to spend, Private Markets 360 | Episode 3: Finding efficiency with technology (with Nick Fox of AEA Investors). PE/VC firms considering investment in the Consumer sector plan to focus on the Consumer Retail (24%) and Consumer Producers sub-sectors (18%), while taking rather a cautious approach to Consumer Leisure (8%). For example, in Japan, deals are often won based on trust, not price, as sellers look for buyers who will preserve their legacy post-transaction. Because of the deterioration in technology valuations, VC and growth equity returns led the fall, in stark contrast to the last several years. A pre-investment ESG diligence includes a materiality scan, ESG performance and benchmark, value-at-stake analytics, and an ESG maturity assessment. Similarly, Australian software companies can be invested in at modest high single-digit/low double-digit EV/ EBITDAs and sold on to global strategics at premium double-digit EV/EBITDAs. There was a notable drop in private debt deal volumes, driven by the slowdown in PE and only partially offset by market share gains taken from bank and syndicated financing channels (Exhibit 8). LPs want more transparency, data points around . [11] S&P Capital IQ Pro Platform (as of 25/01/2022). Get the long story short in the latest episode of our Dry Powder podcast. 10 Morgan Stanley Research, Investor Presentation India Banks, November 11, 2022. Yet, high-quality assets in segments where there is perceived scarcity value can often achieve premium valuations at exit. In almost every regard, 2021 was an exceptional year (as we highlightedin last years report) but it was not a trend breaker. MSIM, the asset management division of Morgan Stanley (NYSE: MS), and its affiliates have arrangements in place to market each others products and services. Exits in the region are notoriously complicated, as tighter public markets limit IPO options and geopolitical uncertainty clouds valuations. On the supply side, the closing of a record number of global megafunds boosted fundraising. For the fifth consecutive year, S&P Global Market Intelligence conducted an annual survey among PE and VC practitioners to measure industry outlooks for the upcoming 12 months. Although PE firms have been slow to join the digital technology revolution, many are catching up and implementing advanced data and analytics tools to identify new growth opportunities and remain competitive. ASIAN BUSINESSES RIPE FOR PROFESSIONALIZATION The growth rate was lower [13]In terms of exit methods, trade sale will still be the most preferable route, attracting a third of respondents (32%) versus a quarter last year. Office, retail, and hospitalitythe sectors most affected by pandemic-driven changes in working, shopping, and travelingshowed signs of emerging stability. Market Intelligence In unserem monatlichen Global Equity Observer finden Sie unsere Gedanken zu weltweiten Ereignissen aus Sicht unseres qualitativ hochwertigen Anlageprozesses. Federal and state tax laws are complex and constantly changing. This has played out among Korean tech companies where early-stage investments are limited to local VCs, keeping valuations modest. Dieses Dokument ist ein Marketingdokument. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia. (As of 13/01/2022). Bookmark content that interests you and it will be saved here for you to read or share later. The diversity of strategies within private debt also helps explain its consistent growth. Conclusion In particular, megafunds gained prominence: 11 funds of more than $10 billion each were raised, totaling $170 billion collectively (Exhibit 4). The third risk factor concerning PE/VC firms this year has changed considerably from last year. This document is disseminated in Japan by MSIMJ, Registered No. To date, top-line revenue growth has been the largest contributor to Asian PE returns.11 This is unsurprising, given that until recently growth has been easy to come by in Asian markets, making efficiency (and hence margin) improvement less of a focus. Venture capital is gearing up for a cold spell as portfolio companies' growth and fundraising are slowing. 2021 was a record year for the PE industry as investment activity surpassed the trillion-dollar mark for the first time. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. ("MSIMJ")s business with respect to discretionary investment management agreements ("IMA") and investment advisory agreements ("IAA This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. PE/VC investors are optimistic about 2022, with a majority betting on the current rapid pace of investment and fundraising to continue given the huge amount of available dry powder and the strong interest in the asset class. 2022 Preqin Global Private Equity Report. Following the record highs achieved in 2021, which were buoyed by pent-up demand from the earlier stages of the pandemic, several exogenous macroeconomic events stymied growth. Amid current financial market volatility, investors are revisiting asset allocations in their portfolios, hoping to identify attractive market segments with upside potential. But ESGs growing impact on private markets goes beyond just dedicated funds and deals: most funds (of any strategy) now consider ESG risk factors in due diligence, and some explicitly include ESG concepts in their value creation plans. Conversely, only 18% of North American respondents see it as a hindrance, the smallest percentage across all regions. equity, real assets, and debt capital markets. Weitere Einzelheiten knnen aus unseren Nutzungsbedingungen entnommen werden. Calvert Research and Management, ARBN 635 157 434 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws. Automating these manual, inefficient processes are potential easy-wins to improve efficiency. Deal volumes declined 27 percent as financing became more expensive and harder to access. The number of IPOs in LatAm in 2021 was on par with 2020, a levelling out of the steep increases seen in 2019, with most of them taking place in Brazil. Critical in this endeavor is the identification of private equity managers which possess the appropriate skills and requisite experience to manage the regions unique challenges. Alle Morgan Stanley Investment Funds anzeigen, View All 1GT: Climate Investing Reinvented. Fundraising hit a new record in 2021 with established fund managers riding the wave. Global private markets fundraising declined by 11 percent to $1.2 trillion. However, top-performing Asian private equity funds show historical performance that often exceeds top-performing North American and European funds.2 This outperformance has generally been delivered with lower levels of underlying leverage, as company-level debt is less readily available and/or less attractively priced in Asia versus Western markets, and private equity subscription lines of credit are less commonly used by funds in Asia.3 General partners (GPs) in the region that are able to identify the right market opportunities and execute accordingly have shown that they can indeed deliver that much desired risk premium. Morgan Stanley Investment Management (MSIM) views private equity in Asia as a potential bright spot for investors that offers the opportunity for outperformance, particularly at the current juncture. In the context of elevated investment levels, this likely suggests that investors are growing wary of risks such as inflation, rising interest rates and high valuations that could put the brakes on this unprecedented pace of transactions.[2]. Changes is slowest in the Middle East and Africa where 18% of investors have yet to embark on digital revolution at all.