Top 3 takeaways from McKinsey & Company’s latest report
McKinsey is the leading adviser to private markets firms, including private equity, real estate, private debt, and infrastructure firms, with a global practice substantially larger than any other firm. They are also the leading consultant partner to the institutional investors that allocate capital to private markets, such as pensions, insurance companies, sovereign wealth funds, endowments, foundations, and family offices.
In their newly released 2022 edition of annual review of private markets, they have developed new analyses drawn from long-running research on private markets, based on the industry’s leading sources of data. They have also gathered insights from our colleagues around the world who work closely with the world’s leading GPs and LPs.
Here is the link to the full report, Private Markets Rally To New Heights.
These are our top 3 favorite insights
Private markets bounced back in 2021.
After a year of pandemic-driven turbulence that suppressed fundraising and deal activity, private markets rebounded across the board. Fundraising was up by nearly 20 percent year over year to reach a record of almost $1.2 trillion; deal makers were busier than ever, deploying more than $3.5 trillion across asset classes; and assets under management (AUM) grew to an all-time high of $9.8 trillion as of July, up from $7.4 trillion the year before. Dollars continued to fund higher risk-return strategies in private equity (PE) and infrastructure and rotated into riskier strategies in real estate.
LPs increased their exposure to earlier-stage private investing.
Venture capital (VC) continued to attract capital on the back of a decade of strong performance but was outpaced by growth equity. With increased funding for VC and companies remaining private for longer, the investable universe of growth companies has expanded substantially. PE firms have moved to fill the space, and the supply of growth equity vehicles has evolved: in the last ten years, six of the ten largest buyout managers have launched a growth vehicle. Today, VC and growth equity combined make up 47 percent of PE fundraising, just shy of buyout’s share.
Key lessons emerge as firms accelerate investment in digital and analytics.
Leading firms continue to make major investments in digital and analytics Capabilities across both front and back office to capture economies of scale as they grow. Most are focused on building advanced analytics capabilities to identify opportunities and create value and on setting up investor portals to drive LP satisfaction, but they also get the basics right by creating high-quality digital infrastructure. As more investment institutions embark on digital transformation, they will need to focus on setting a use-case-driven vision, fighting for talent, and getting commitment from the C-suite.
