Private markets are switching roles with public markets in financing the real economy, setting the stage for fundamental change within the industry, says new research from Partners Group
Baar-Zug, Switzerland; 24 April 2023
- Steffen Meister, Partners Group’s Executive Chairman, charts the role reversal between private and public markets in a White Paper published today
- The Paper asserts that private markets firms will differentiate themselves between active and passive investment strategies as the industry attracts new entrants
- Amidst increasing competition and pressure to create long-term value, the Paper says private markets firms can learn important lessons from successful diversified industrial groups
Private markets are overtaking public markets in financing the real economy and this role reversal is set to fundamentally reshape the private markets industry in the future, argues Steffen Meister, Executive Chairman of the Board of Directors at Partners Group, a leading global private markets firm, in a new White Paper published today.
The Paper, The New Traditional Asset Class: How private and public markets have changed roles in financing the real economy and what this means for the future, examines how the financing of business is undergoing a major transformation. The corporate IPO, once the sign of a mature business coming to market, is now more often the preserve of young and unprofitable businesses that may not prove successful. For example, the proportion of listed companies in the US with positive earnings at the time of IPO fell from 85% in 1990 to 21% last year. Meanwhile, private markets, once known as a venue for opportunism and financial engineering, have increasingly turned to financing healthy businesses and creating value through organic growth and operational excellence.
Steffen Meister comments: “Private markets have been on an evolutionary journey in recent decades and the industry is increasingly taking over from public markets as the stewards of the real economy.”
The rising significance of private markets in financing the real economy, with annual global fundraising now significantly outpacing equity issuance in public markets, will likely attract new entrants to the industry and drive an equally important change among firms themselves, the Paper claims. Active and passive investment are familiar terms in public markets and a similar distinction will be key to the differentiation between private markets firms in the future, albeit with a different definition of active and passive. Truly active private markets firms, which combine scale of resources with an industrial- style transformational investing approach to creating value, will be best-positioned to deliver sustainable outperformance.
The Paper explains that in an increasingly challenging and competitive business environment, where constant transformation will be required for companies to keep pace with change and opportunity, active private markets firms will need to more closely resemble industrial groups than financial services businesses. It shares five lessons that active private markets firms can learn from successful conglomerates, whilst studiously avoiding their pitfalls.
The Paper also looks at what the new landscape of private markets means for asset allocation and the evolution of regulation. Investors seeking to align their investment portfolio to the foundations of the future economy must increasingly consider that private markets provide the best access to many real economy assets. Meanwhile, regulation will adapt as private and retail investors take a greater interest in private markets.
Steffen Meister adds: “We are seeing rapid growth and disruption across global giga themes such as digitization, decarbonization, and ‘new living’ driven consumer habits, as well as accelerating technological advances. Against this backdrop, modern private markets firms will need to be strategically agile and entrepreneurial to lead their portfolio assets to success and build our future sustainable economy. Offense will be the new defense.”
To download a copy of the White Paper, please visit: www.partnersgroup.com/research
 Ritter, J. R., 2023. Initial Public Offerings: Updated Statistics, Gainesville: Warrington College of Business, University of Florida.
 Private markets fundraising data: Preqin (dated 24 January 2023); global equity issuance data: Refinitiv (dated 24 January 2023).