With nearly $11 trillion in closed-end fund assets under management at the end of 2021, the expansion has been unrelenting, driven by fundraising records and strong performance.
Then 2022 hit. Geopolitical conflict, inflation headwinds, and central bank hawkishness have brought the global economy to the brink of recession. Public market investors felt the brunt of shifting sentiment, with the traditional 60/40 portfolio suffering its worst calendar year in decades.
Yet in private markets, stormy economic waters have barely shifted the cargo. Fundraising remained strong in 2022 as 2021 distributions were recycled, and fund assets have seen only marginal markdowns, according to our latest Benchmarks.
However, as headwinds persist, the prospect of negative AUM expansion for the first time since the financial crisis is a very real possibility. Given the recent discussion of a sea change in the markets, our recent research attempts to answer the question, “What does the future hold for private capital?”
In the report, we present a simple yet dynamic model to forecast growth in assets under management for the industry, providing three scenarios depending on where financial market performance takes us. Our base case calls for AUM to grow from $10.8 trillion in 2021 to $13 trillion by 2027, but not before a decline in 2022 (as more data comes in) and 2023.
Forecasting is a balancing act of art and science, though, so we present a range for the eventual AUM forecast using a “good case” and “bad case” set of inputs. In our bad case, economic headwinds persist, and private fund performance and fundraising suffer accordingly. The net result is AUM may barely move, reaching just $11.2 trillion.
Our good case presents a rosier picture, where growth picks up quickly, fund performance suffers little, and the wheels of fundraising keep churning, leading to an AUM estimate of $16.1 trillion by 2027.
Importantly, different asset classes will feel different impacts in each scenario, so we break out our estimates by the five main private fund categories we track: private equity, venture capital, private debt, real estate, and real assets.
We dive into each asset class, the scenarios, and the forecast methodology in our analyst note: What the Future Holds for Private Capital
As always, please reach out if you have any questions or feedback.