Toward $20 trillion in private capital AUM
May 11, 2024
One could reasonably say the 2010s were an almost perfect decade for private markets.
Drawn in by strong fund performance, low interest rates, and a desire for alternative betas, institutional investors poured investment into the space and sent private capital AUM on a steep growth trajectory.
Over the 10 years ending 2022, private capital's exceptional expansion—2.5 times that of public market cap growth—led to global closed-end fund AUM increasing to $14.7 trillion. As we set our eyes on the future of private markets, we ask:
Will this impressive growth continue?
To answer that question, we have built a forecast model to project the future for private capital over the next five years. With higher rates and muted distributions, we anticipate the market has an uphill battle to replicate the robust, 12.8% annual AUM growth since 2012.
Our base-case projections suggest more tempered annual growth of 4.9% through 2028, cumulating in an estimated $19.6 trillion of AUM. Under favorable macroeconomic conditions, we see AUM reaching $23.7 trillion with an annual growth of 8.3%, while our downside forecast sees AUM only expanding to $16.1 trillion.
Across the various segments of private markets, we expect a wide dispersion of outcomes.
We estimate sustained growth across PE (cumulative AUM growth of +51.1%), private debt (+42.9%), and real assets (+26.8%), which have maintained relatively strong fundraising, performance, and investor appetite.
On the lower end of our forecasts, VC (+20.7%) and real estate (+10.3%) face more difficult paths with VC struggling under the weight of low exit activity and real estate commitments hitting a trough not seen since the GFC.
Our forecasts also include projections for secondaries and funds of funds (FoF) access points, which are going in opposite directions. Secondaries fund managers are well situated to benefit from the mismatch in capital demand and supply, particularly as PE and VC portfolio assets age amid the exit winter.
Compared to a decade prior, AUM in primary vehicles has grown 250% to $13.3 trillion in 2022, while secondaries AUM has grown 203% to $462.5 billion. With $200 billion in dry powder, secondaries GPs are in a position to purchase prime assets at attractive pricing from GPs and LPs in need of capital flexibility.
While we anticipate secondaries AUM to grow, FoF strategies are operating on a different script. The proliferation of evergreen vehicles has allowed investors to access private markets more easily via semiliquid offerings. In tandem, commitments to FoF have declined and we are forecasting AUM to stagnate at $1 trillion.
Read more about our AUM forecasts, methodology, and assumptions in our free research note: Private Capital's Path to $20 Trillion
Drawn in by strong fund performance, low interest rates, and a desire for alternative betas, institutional investors poured investment into the space and sent private capital AUM on a steep growth trajectory.
Over the 10 years ending 2022, private capital's exceptional expansion—2.5 times that of public market cap growth—led to global closed-end fund AUM increasing to $14.7 trillion. As we set our eyes on the future of private markets, we ask:
Will this impressive growth continue?
To answer that question, we have built a forecast model to project the future for private capital over the next five years. With higher rates and muted distributions, we anticipate the market has an uphill battle to replicate the robust, 12.8% annual AUM growth since 2012.
Our base-case projections suggest more tempered annual growth of 4.9% through 2028, cumulating in an estimated $19.6 trillion of AUM. Under favorable macroeconomic conditions, we see AUM reaching $23.7 trillion with an annual growth of 8.3%, while our downside forecast sees AUM only expanding to $16.1 trillion.
Across the various segments of private markets, we expect a wide dispersion of outcomes.
We estimate sustained growth across PE (cumulative AUM growth of +51.1%), private debt (+42.9%), and real assets (+26.8%), which have maintained relatively strong fundraising, performance, and investor appetite.
On the lower end of our forecasts, VC (+20.7%) and real estate (+10.3%) face more difficult paths with VC struggling under the weight of low exit activity and real estate commitments hitting a trough not seen since the GFC.
Our forecasts also include projections for secondaries and funds of funds (FoF) access points, which are going in opposite directions. Secondaries fund managers are well situated to benefit from the mismatch in capital demand and supply, particularly as PE and VC portfolio assets age amid the exit winter.
Compared to a decade prior, AUM in primary vehicles has grown 250% to $13.3 trillion in 2022, while secondaries AUM has grown 203% to $462.5 billion. With $200 billion in dry powder, secondaries GPs are in a position to purchase prime assets at attractive pricing from GPs and LPs in need of capital flexibility.
While we anticipate secondaries AUM to grow, FoF strategies are operating on a different script. The proliferation of evergreen vehicles has allowed investors to access private markets more easily via semiliquid offerings. In tandem, commitments to FoF have declined and we are forecasting AUM to stagnate at $1 trillion.
Read more about our AUM forecasts, methodology, and assumptions in our free research note: Private Capital's Path to $20 Trillion
Nathan Schwartz
Quantitative Research Analyst
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