This letter introduces Bain’s 2020 Global Private Equity Report.
The beat goes on. Despite growing macroeconomic and political uncertainty across global markets, the private equity industry continues to make and sell investments, raise capital and generate relatively strong returns.
Yet, the private markets also continue to throw up challenges. Prices set all-time highs in the US and remained near record levels in Europe, raising the bar for investors looking to create value. Holding periods declined as investors attempted to take advantage of higher prices on the sell side and exit before any impending recession. Fund-raising remained healthy, but the market skewed to larger, more experienced investment firms. And, while returns were attractive, they continued to come under pressure as the industry matured and competition intensified.
In this, Bain’s 11th annual Global Private Equity Report, we examine the industry’s strengths and challenges, and the evolutionary path that lies ahead. In addition to the critical statistics that characterized PE performance in 2019, we take a thorough look at key strategies the best firms are using to gain a competitive edge, and discuss an important milestone in the industry’s relatively short history.
The past year marked the first time ever that 10-year returns in the public markets matched those for private equity. To be sure, the US has ridden a tremendous bull market for public and private assets over the past decade, but what does return convergence mean for the future of private equity? And why didn’t the same phenomenon show up in Europe? In Section 3, we join with Harvard Business School professor Josh Lerner, State Street Global Markets and State Street Private Equity Index to weigh the significance of this unique moment in time and its implications for investors and limited partners.
In Section 2, please look for our assessment of PE investments in the technology space and how smart investors manage risk. We also double-click into the payments industry to discuss how investors are making money there today vs. a decade ago and examine how firms are using sophisticated pricing strategies to enhance top-line growth.
We take an in-depth look at ESG and the topics of sustainability and impact investing. Environmental, social and governance investing has been around for years, but many firms are finding they need to incorporate sustainability much more explicitly into their investment strategy to meet the needs of limited partners—and, indeed, to make more money on their investments. Can they truly do well by doing good?
Disruption has been a key theme for several years. Everyone knows it is occurring in more and more industries and at an increasing pace. But how do you use due diligence to gauge the likelihood for disruption in a specific industry? And how do you determine its potential timing and impact? Turn to Section 2 for Bain’s answer.
I have no doubt that 2020 will be another busy and exciting year for the PE industry. Investors will continue to grapple with how to repeatably create alpha in changing conditions, amid more competition. We at Bain look forward to continuing the discussion with our friends across the industry’s ecosystem.