Markets for private equity have skyrocketed over the last few years and are likely to continue growing as more time passes. Investors, executives, and entrepreneurs must understand what the future of finance might look like. Many were worried about recessions and inflation after the Covid-19 pandemic. The PE sector has surprised all by managing to stay buoyant with big-ticket PE deals, setting record highs in 2021. PE firms bypass banks to get direct loans from each other.

With PE returns surging ahead of other markets and private equity solutions becoming more popular among wealthy investors and pension funds, it is only a matter of time before PE will become mainstream among asset classes. Prevailing attitudes and regulations are likely to change significantly in the coming years. 

Here’s an outlook of markets for private equity and the future of finance:

Increasing Demand from Individual Investors

According to an estimate, only a minor percentage of private assets have investments in private equity. Rather than a lack of demand, it is because of the limited supply of such assets. Current asset management regulations have been largely confined to individual investors and asset management offers have mostly stayed the same in the last few decades.

Beyond regulatory constraints, the retail private market offerings are confusing, mainly because of high minimum amounts for investments, long-term illiquidity, significant lock-in commitment, and a lack of transparency. PE investors do not receive frequent valuations and need more information about target companies. Modern asset managers believe that private markets should allow investments from non-accredited individuals to diversify their portfolios.

The real estate markets have seen a recent rise, leading to a growing willingness among retail investors to invest with institutional investors. A new generation of PE investors is also ready to invest in the real economy, addressing concrete terms in private equity solutions.

Regulators and Policymakers Address Private Market Opening

Considering the increasing demand from individual investors, regulators are increasingly encouraging the opening of private equity markets. It aims at stimulating capital growth and meeting industrial needs. Several new amendments widen the scope of accredited investors, cheering fund managers to launch customized retail programs. They aim at gathering retail and institutional communities, allowing them to invest in infrastructure, debt instruments, and other long-term assets.

To date, there have been mixed outcomes due to a lack of flexibility in investment rules, particularly diversification requirements, underlying assets eligibility, concentration limits, and the possibility to leverage products.

Fintech Platforms Accelerating the Transformation

Keeping at par with the changing regulations, the last few years have witnessed a rise in technology-driven players overcoming the bottlenecks for private equity investments. The latest technology in the PE markets allows private market access through digital platforms, increasing transparency and broadening the scope of the population in the asset class. Fintech platforms offer high-net-worth investors the possibility to invest themselves, thanks to primary structures on online platforms.

Technologically advanced private equity solutions expand the offerings of PE funds, managing end-to-end operations to address clients’ appetites. Consequently, it reduces the search and transaction costs related to identifying suitable investments, increasing their overall level of industrial transparency. Lastly, as an increasing number of investors enter the market, other platforms strive to address a significant hurdle for retail investors: the liquidity issue. The secondary market allows buying and selling private funds, where intermediation has been a norm for decades.

Rise of PE Funds with Open-Ends

While close-ended limited partnerships were common for PE market access in the past, creating a selection of stock exchanges is the recent trend in the market. These companies offer institutional investors open access to regulated markets, with a dedication to closed-end funds. Globally, more than 200 PE vehicles are trading on recognized exchanges. Shortly, combining these offerings may accelerate the segment and bring product liquidity by increasing transparency, lowering the entry barriers, and governing the investors. Open-ended PE funds have no deadlines for liquidity, characterized by perpetual capital raising, investing, harvesting, and distributing.

The golden age of private equity is expected to continue in 2022, provided the political instability and rising inflation do not slow down any time soon. While it keeps retail investors out of the trend, things are changing and creating new opportunities for asset managers and investors. Use the latest private equity solutions to reshape the industry for data-based asset allocation and distribution.

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