Last week, our friends at DealCloud hosted a webinar about trends to watch in 2020. This webinar, featuring perspectives from the deal maker, fund manager and technology angle, discussed the factors that will impact the market most heavily. Read on to learn more about our key takeaways from the webinar.
December 18, 2019
The Growing Private Markets
One of the biggest trends to watch, identified in the webinar, was the growth of the private markets. The private markets industry continues to grow with more managers coming to market every year. As of August 2019, the total private markets AUM represented $5.5T or 6.7% of all global listed equities and non-financial debt. To put this amount into context, this is approximately the size of Japan’s economy relative to all global GDP in 2017.
As this “trend to watch” continues, the panelists agreed that the overall AUM in the private markets will continue to grow. This has led to a trend where GPs are coming back to market with larger funds due to the increased demand. It’s becoming progressively common for a GP to grow its fund size from $1B for the first fund, to $1.5B for the second and $2.5B for the third fund.
How LPs are balancing the Private Markets Growth
Today’s investors are challenged with wanting to deploy more into the private markets but also concerned with a larger fund size making it harder for the GP to put the money to work. Many LPs are solving this challenge through thoroughly diligencing managers before investing.
Through the diligence process, LPs can uncover if the fund size growth is a natural evolution of the GP as it grows with the right infrastructure and team to handle the bigger deal size. The diligence process will show if a GP can handle the step up in fund size; like in the example above of growing from $1B to $1.5B to $2.5B.
LPs are also finding that GPs are growing to diversify their fund offerings. A traditionally buyout focused GP might now offer a credit product. Again, LPs are diligencing to see if the GP has built out the needed personnel to support this growth. If so, LPs are leveraging this broader product offering as a way to grow their relationship and to diversify investments through one GP.
How LPs are Diligencing Efficiently
With the increased focus on diligencing managers before investing, LPs are looking to streamline this often cumbersome process. Technology platforms, such as Cobalt LP, offer specific tools around diligencing managers. The latest product offering even gives LPs direct access to Hamilton Lane’s Fund Investment Team’s data that is collected during the diligence process for funds currently in market.
If you missed the webinar and want to access the replay, please click here.