The private equity market has experienced dramatic growth over the past two decades—rising from $30 billion to $4 trillion—propelled by tremendous demand from a wide variety of investors, according to SEI Investor Management Services.
In a new study, SEI asked some 200 industry general partners, limited partners and consultants where private equity is heading.
Although the industry’s rapid growth rate is unlikely to persist, many survey participants said they expected growth to remain on an upward trajectory over the next 10 years, thanks to strong demand—a median $7 trillion, implying an annual growth rate of 5.8%.
GPs predicted that much demand would come from high-net-worth individuals, investing directly or through family offices.
Sixty-four percent of LPs in the study said they planned to increase their private equity allocation, up significantly from only 26% who said this five years ago. And some 40% of respondents said they would buy or sell secondaries over the next 12 months.
About a fifth of respondents said they preferred co-investments to traditional closed-end vehicles.
However, comingled closed-end fund structures will continue to be the vehicle of choice for the foreseeable future, SEI said, even as liquid options and co-investments continue to make inroads.
The poll found that LPs and consultants were likelier to consider investment performance a critical consideration than any other selection criteria. Fund managers’ credentials and reputation were still important, but less so than in past years.
When evaluating managers, the survey showed, consultants were more likely than LPs to focus on risk management infrastructure, separation of investment and operations, and an independent administrator.
More than 80% of GPs said compliance costs were climbing faster than other operating expenses, making these a key operational challenge.
As well, they were receiving more scrutiny from both LPs and regulators. Sixty-five percent of LPs said they were increasing the level of operational due diligence performed on GPs.