If lower interest rates were coincidental with the bull run in private equity, higher rates should not significantly change the asset class’s longer-term fundamentals, our specialist panel is told.
But private markets’ perennially strong investment performance was delivered in the context of low rates, so as the cost of leverage increases, questions arise about the impact on valuations, particularly for portfolios containing highly levered companies.
For one of our panellists, this means that for the first time in over a decade, entry price and valuation are going to be essential factors for returns as investors focus more on the value creation of the companies they invest in rather than on portfolio companies’ cheap access to loans.
Transparency of valuations is difficult to attain in private markets and assumes greater urgency as private assets become more widely available to individuals. Yet this ‘retailisation’ of private equity is in itself a big driver for the asset class as a huge transfer of intergenerational wealth takes place.
And, in turn, this wealth transfer is necessary to support one more argument for private markets: upgrading the world’s creaky infrastructure in the years ahead cannot happen without it.
Nick Fitzpatrick, group editor, Funds Europe
© 2022 funds europe
