A report by Willis Towers Watson has found demand for private equity is growing significantly as companies change the ways they raise capital, offering opportunities for institutional investors.
The private equity industry had grown more than 500% since 2000 and was now valued at over US$3 trillion in 2019, it said.
It said companies preferred private equity as it reduced the need for quarterly reporting which was required for public companies. There was also more regulatory burden and rising ongoing costs for listed companies.
The fact companies were choosing to list on the market at a later date meant investors often missed out on the crucial stages of early growth in a company.
“Public market investors are accessing companies at a later stage of their development than in the past, if they are able to access them at all. When these companies list, they emerge as mature and large companies. This delay could lead to public market investors to miss out on a significant period of growth.”
For institutional investors who wished to access private equity, Willis Towers Watson suggested four routes to this:
- Relying on companies in an existing public equity portfolio to acquire young and growing private companies via acquisition;
- Invest in private equity or venture capital funds;
- A private equity fund invites a fund investor to co-invest in a specific company; and
- Asset owners bypass specialised private equity funds completely and invest directly in private companies.
Liang Yin, senior investment consultant at the Thinking Ahead Group, an independent research team within Willis Towers Watson, said: “Technology may well drive evolution in this space. It’s possible that crowdfunding platforms that already exist to connect businesses and investors in private markets could evolve to become the new private stock exchanges or even utilise the benefits of fractional ownership offered by blockchain technology to open up investment in private markets to a new segment of the investor community”.
“Whichever path firms choose to follow in the future, the private equity market looks likely to form a bigger part of the institutional landscape going forward.”