Wealthy Investors Will Boost the Private-Equity Sector to $12 Trillion in Assets

Investments by wealthy investors will boost assets in private equity to nearly $12 trillion by 2029, according to London-based Preqin, a private markets data and analysis firm.

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Private-equity investments by individuals are expected to propel the growth of the sector to nearly US$12 trillion—more than double its current asset level—within the next six years, according to research by Preqin, a London-based provider of private-market data.

Although new fundraising totals for private-equity are expected to remain subdued in the next couple of years, stepped-up investing by family offices, wealth managers, private banks, and individual investors is expected to begin making an impact on the sector after 2027, Preqin said.

Banks, insurance companies, public pension funds, and other large institutional investors, have been by far the biggest investors in private equity. Individual investors have largely stayed away—despite the double-digit returns these funds can provide—because private-equity funds generally require a minimum investment of US$10 million or more. Also, investors in standard versions of these funds generally don’t get their money back, or any return on their capital, for at least 10 years.

Recently, institutional investors have been hitting the upper end of their asset-allocation targets for private equity—they simply own as much as their board overseers allow.

“They might buy some more, they might sell, but in general, growth from the institutional segment … will be limited,” says Victoria Chernykh, Preqin’s associate vice president of research insights.

To continue to grow, private-equity firms have begun targeting the wealth management sector with products tailored to their needs. That is, they have created various types of fund vehicles—in the U.S., Europe, and elsewhere—that require investments as low as US$10,000 or US$25,000 and allow for more frequent buying and selling.

On Tuesday, for instance, the US$700 billion alternative asset manager,

        Apollo Global Management
      ,

announced it was offering Apollo S3 Private Markets Fund and Apollo S3 Private Markets Lux—new semi-liquid “evergreen” funds for eligible accredited investors (who have a net worth of more than US$1 million excluding their primary residence, or annual income of over US$200,000).

Evergreen or perpetual funds, which are also known as ’40 Act funds, allow for lower investment minimums and for a certain number of investors to make cash withdrawals as often as quarterly.

In a report published this fall titled the Future of Alternatives 2029, Preqin details how this shift will propel growth in private equity assets under management to nearly US$12 trillion globally by 2029 from about US$5.8 trillion at the end of last year.

The fact the private-equity industry has tailored products for the wealth management sector is certainly one reason for the expected growth. Moreover, large asset managers such as Blackstone, KKR, and TPG have the resources to grow their distribution networks to reach, and educate, private banks, family offices, and others serving individual investors, Chernykh says.

Asset managers that have traditionally served the retail market also have begun looking for a way into private markets. In February,

        Amundi

—a Paris-based asset manager—announced plans to buy Alpha Associates, a Zurich-based alternative assets manager, according to the Financial Times. In the U.S.,

        Franklin Templeton

and

        T. Rowe Price

are also pursuing private-market strategies, Preqin said.

There’s also the fact that many individual investors have wanted a way into the private-equity sector because of the outsize returns they can provide—typically with less volatility—and because the sector offers diversification from the public markets. Investors also recognize that private companies are comprising a larger share of the real economy, particularly as young, growing companies eschew going public.

“The greater number of private companies compared with public ones and  the ongoing slowdown in IPOs indicate that private markets will continue to gain ground on public markets through faster growth in the coming years, following the trend of the past decade,” Preqin said in an earlier report on the state of the market in the first half of the year.

Of course, many investors haven’t turned to the private markets because they’ve been satisfied with the outperformance they’ve received by investing in large, liquid public markets. “There’s a transition going on, because first of all, [retail investors] need to be convinced that it is worth allocating some capital there and then they’ll actually do it,” Chernykh says.

By Preqin’s calculations, that transition will accelerate fundraising for private equity funds beginning in 2027 with an estimated US$660 billion raised globally, up from about US$631 billion in 2023.

An Expected Rise in ‘GP-Stakes’ Investing

Another way individual investors can get exposure to private equity is by investing in minority positions of private-equity firms rather than the funds they manage, according to Preqin.

Because these firms act as the general partner, or GP, of a private-equity fund, the strategy is known as “GP-stakes investing,” and it can be practiced by investing in funds that buy the minority stakes or by investing in management firms that are listed on the stock market, Preqin said.

There currently are 28 closed GP stakes funds with US$60 billion in assets under management, according to the data firm. They range in size from US$2.6 million to US$100 million for funds investing in venture capital vehicles, to US$10 million to US$13 billion for those investing in private-equity running growth or buyout strategies, Preqin said in a separate report on the sector written by Chernykh.

        Blue Owl
      ,

Blackstone,

        Goldman Sachs
      ,

and Wafra are the top investment management companies creating these vehicles, the report said.

The benefit to investors in these strategies is they can be certain of receiving an annual cash distribution based on a percentage of the annual management fee the GP receives in addition to a percentage of the manager’s profits. Investors also realize gains if a GP-stakes fund manager attracts new assets, Chernykh says.

Though diversification of assets is a big consideration for investors considering the sector, returns are, too.

Preqin forecasts those returns to drop across various strategies, the largest of which are “buyout” and “growth.” Funds with buyout strategies invest in established companies with the aim of improving them, often by using debt, while growth strategy funds take minority positions in profitable but still growing companies without using leverage, according to the data firm.

From 2023 to 2029, increased costs for GPs largely from higher interest rates is likely to cause the internal rate of return to drop to 11.7% from 13.9% for buyout strategies and to 13.8% to 15.7% for growth, Preqin says.