10 Predictions For Private Equity In 2019

Private equity in 2019 will be insulated fr om the economic and political uncertainty that may harm other investments. Photocredit: GettyGETTY

Based on market trends and investor sentiment and how the two intersect with an uncertain political and macroeconomic outlook, private equity should have an amazing year. These 10 predictions illustrate private equity’s resilience amidst stock market volatility, trade wars and Brexit battles. Far from crimping performance, such challenges will increase private equity’s appeal in 2019, particularly versus other forms of investment.

Commitments to Private Equity Break Records

The $703 billion commitment flow to private equity in 2018 - $514 billion pledged to classic funds, and a record $189 billion devoted to co-investment, separately managed accounts and direct investment - stands 12 percent below 2017’s record of $800 billion and 3 percent shy of 2016’s runner-up total of $722 billion, according to estimates from Triago, the fund advisory I founded 26 years ago. But the high annual commitments of the past three years pale in comparison to what 2019 holds. Expect more large fund offerings than ever before, an unprecedented number of total funds seeking capital and new highs for co-investment and separately managed accounts, as private equity managers rush to lock in record commitments before one of the world’s longest periods of economic expansion comes to an end.

Private Equity Outperforms Stocks

The average private equity fund appreciated 8.2 percent in 2018, while virtually all major public market indexes experienced double-digit annual declines. Private equity assets, actively managed by fund managers and not subject to the more extreme valuation swings of the stock market, tend to outperform public equities during periods when the latter are hit by exceptional volatility. The macroeconomic and political concerns that lead to volatility in 2018 remain with us and private equity will continue outperforming stocks this year, attracting growing numbers of investors.

A Large Generalist Asset Manager Acquires a Leading PE Manager

Some will say I’m going out on a limb with this one (to see truly against-the-odds predictions, check out my satiric “Outrageous Predictions for 2019”). Yet with the global economy seemingly moving closer to downturn and with traditional asset management profit squeezed as public market investors move from high-margin actively managed strategies to low-margin index investing, push is here to shove. Although private equity is the only asset category remaining wh ere active management produces better returns than passive index investing, this landmark acquisition will happen amid a general move towards PE consolidation that is already underway; private equity appetite is experiencing secular growth, but the number of funds seeking capital and the amounts being sought have been rising even more rapidly.