[ T H O U G H T L E A D E R S H I P | C S C ]
The next evolution in private capital for closed-end funds
Private markets have reached an inflection point after years of growth and alpha generation have led to competition , visibility , and regulatory oversight . To prepare for the next evolution , three executives from North America , Asia-Pacific , and Europe discuss the changes , how fund managers can prepare , and what the future holds for this burgeoning sector .
Jonathan Watkins : What does the next evolution in private capital look like for closed-end funds , and how did we get to this point ? Anne Anquillare : It all started with alpha . More specifically , private capital ' s ability to deliver alpha . Then the conversation moved onto transparency as we asked , ‘ Do we , as an industry , have a commitment to transparency with our investors ?’ Now , not only do you have to deliver alpha and transparency , but there needs to be trust between the general partners and their investors . Trust is a bigger lift than customised reporting , but as an industry , I ' m sure we can get there .
JW : What is driving this evolutionary change ? Paul Whelan : The capital markets are following a typical maturation cycle of early success leading to more investor demand and growth . This growth has led to increased competition among managers who are vying for the same pool of assets . This , in turn , leads to increased investor scrutiny and sophistication , and also increased regulatory oversight , which is especially evident in Europe . Institutional investors have continued to increase allocations to private markets at the expense of public markets , and that ' s primarily driven by outperformance in the private market sector , where the combined value of private equity transactions in Europe has tripled over the past decade .
JW : Agnes , do the answers just given apply to the Asia-Pacific market ? Agnes Chen : In APAC , private equity has been about size . It ' s reached about $ 296 billion in 2021 , which is about 30 % of the global AUM over the past decade . The AUM focus on this region grew 2.4 times faster than in North America and three times faster than in Europe . The demand is in internet and technology companies , which have contributed to about 48 % of deal value . A lot of the APAC unicorns grew in the past five years , with more than 50 % of global unicorn growth represented in APAC , and there ' s still a lot of dry powder committed and unallocated waiting to be invested .
JW : Anne , are the North American drivers of this change any different , and how do managers view these other regions ? AA : In North America we ' re watching what ' s going on in Europe and Asia . What ' s going on in these markets has a trickle-down effect in North America , and the impact can be significant because the market here is more competitive and the size of allocations to private equity , private capital , private debt , and all things illiquid are so large . The other thing that we ' re really mindful of is the regulatory oversight and how each region ' s regulatory bodies are watching the others . Because of this we ' re starting to see some trickle-down regulatory effects in our markets due to the other regions as well as the local regulatory agencies stepping it up .
JW : From the fund manager perspective , how can they prepare for this next evolution in private capital ?
30 Global Custodian Fund Services Annual 2022