The rise and rise of private markets has a feeling of inexorability about it. Despite increased financing costs and an uncertain growth outlook, private market assets under management totalled $13.1tn on June 30 last year, having grown at nearly 20 per cent a year since 2018, according to consultants McKinsey.
While fundraising has declined from its 2021 peak, a recent survey by State Street found that a majority of institutional investors intended to increase their exposure to almost all private markets, including infrastructure, private debt, private equity and real estate.
Yet the boom in private markets since the 2007-2009 financial crisis, especially in the big buyout category, was built on ultra-loose monetary policy. Most of the returns came not from enhancing the efficiency of portfolio companies, but from selling assets at ever-increasing market multiples and through leverage, which increases the return on equity relative to the return on assets.