Practical Applications of Private Markets—From Alternative to Mainstream: Evolution during the Past 30 Years and Key Trends and Challenges for the Decades to Come
{"title":"Practical Applications of Private Markets—From Alternative to Mainstream: Evolution during the Past 30 Years and Key Trends and Challenges for the Decades to Come","authors":"Erik Knutzen","doi":"10.3905/pa.2023.pa541","DOIUrl":null,"url":null,"abstract":"In <ext-link><bold><italic>Private Markets—From Alternative to Mainstream: Evolution during the Past 30 Years and Key Trends and Challenges for the Decades to Come</italic></bold></ext-link>, from the June 2022 special 30th anniversary issue of <bold><italic>The Journal of Investing</italic></bold>, Erik Knutzen (of <bold>Neuberger Berman</bold>) explains the dramatic growth and evolution of private markets since the 1980s. Back then, private equity (PE) was a small and exotic sector for only the most sophisticated investors. In the decades since, however, PE has grown into a multitrillion-dollar global industry that owns thousands of companies, while the number of publicly listed companies has dropped to about half of what it was in the 1990s. The author explains the key drivers of these events: regulatory changes, the evolution of credit markets, broader acceptance of PE among institutional investors, PE’s relatively high returns, growth and innovation in the PE sector, PE’s diversification and return-smoothing benefits, PE’s better alignment for long-term investors, and the fact that private markets are becoming more liquid. Private markets likely will continue to grow due to PE’s higher expected returns, institutional investors’ need to close the “return gap” between expected and target returns, and the fact that PE is increasingly grouped with traditional assets in asset allocation frameworks.","PeriodicalId":500434,"journal":{"name":"Practical applications of institutional investor journals","volume":"18 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2023-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Practical applications of institutional investor journals","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.3905/pa.2023.pa541","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
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Abstract
In Private Markets—From Alternative to Mainstream: Evolution during the Past 30 Years and Key Trends and Challenges for the Decades to Come, from the June 2022 special 30th anniversary issue of The Journal of Investing, Erik Knutzen (of Neuberger Berman) explains the dramatic growth and evolution of private markets since the 1980s. Back then, private equity (PE) was a small and exotic sector for only the most sophisticated investors. In the decades since, however, PE has grown into a multitrillion-dollar global industry that owns thousands of companies, while the number of publicly listed companies has dropped to about half of what it was in the 1990s. The author explains the key drivers of these events: regulatory changes, the evolution of credit markets, broader acceptance of PE among institutional investors, PE’s relatively high returns, growth and innovation in the PE sector, PE’s diversification and return-smoothing benefits, PE’s better alignment for long-term investors, and the fact that private markets are becoming more liquid. Private markets likely will continue to grow due to PE’s higher expected returns, institutional investors’ need to close the “return gap” between expected and target returns, and the fact that PE is increasingly grouped with traditional assets in asset allocation frameworks.