The private capital industry soars to more than $7 trillion

This Private capital The industry has grown to more than $7 trillion due to the demand for higher-returning but expensive and opaque strategies, which has prompted companies such as Schroder and JPMorgan Chase to set up new departments and let other companies run around for acquisitions.

Although it is still dwarfed by the traditional asset management industry, which mainly invests in mainstream, public stock and bond markets, explosive growth in areas such as private equity will increase the size of the entire private capital industry to US$7.4 trillion by the end of 2020. Morgan Stanley. The bank expects to reach US$13 trillion by 2025.

Private capital now Rapid growth Tracking passive investment as a cheap index has prompted many large asset management groups to expand their business in the region to offset the profit pressure of traditional investment channels.

Earlier this week, Schroder Investments, the UK’s largest listed investment group Announce It integrates all private capital instruments into a new entity called Schroder Capital. Barclays pointed out that in an investor event, it also vowed to double the size of these assets to 86 billion pounds by the end of 2025.

“Platforms will become the key to what I call the’industrialization’ of the private market,” said Georg Wunderlin, global head of Schroder Capital. “We may be 15 years behind the open market, but the industry is maturing in a similar way.”

JPMorgan Asset Management also established a new department this week called JP Morgan Private Capital In order to develop business in this area, other investment groups said they are seeking acquisitions to start their work.

“This is something we are evaluating,” Robert Sharps, T Rowe Price’s president and chief investment officer, said at the company’s annual shareholder meeting last month. “In many of our clients, the trend towards more illiquid strategies and private assets is not something we have lost.”

According to industry insiders, the biggest driver of interest in private capital investment is the low interest rate environment and high stock market valuations, which makes Future return outlook From these asset classes. At the same time, private markets are less volatile because they are rarely traded and valuations may be more subjective. This opacity actually adds to the brilliance of many investors.

Morgan Stanley analysts pointed out in a report on Thursday that for many investment groups, under the pressure of the explosive popularity of cheap, passive funds, this appetite is a huge boon.

The report states: “For traditional asset management companies, in view of the commodification of the industry and the existing profit margin challenges, expenses will be relatively difficult to defend.” “Therefore, we expect traditional asset management companies to use these levers more to protect The existing revenue pool also tends to have a more generous expense pool and a private market alternative with higher structural growth.”

Private property It still accounts for the largest part of the private capital sector, with assets exceeding US$3 trillion, but its growth rate is slower than private credit, funds and infrastructure that bypass banks and provide customized loans directly to companies.

However, the fastest growing corner is the so-called “Growth fair“This usually involves investing in companies that are too large to use traditional venture capital companies, but are unwilling to go public or sell them entirely to private equity.

According to data from Morgan Stanley, as of the end of last year, growth stocks accounted for 14% of the private capital industry, up from 5% in 2005. JP Morgan Asset Management said earlier this week that it had poached Christopher Dawe from Goldman Sachs to lead the new growth equity investment unit as part of its broader foray into private capital.

Brian Carlin, CEO of the newly established JPMorgan Private Capital, said: “Growth stocks and private debt are the fastest-growing asset classes in the alternative investment industry. Individuals and institutional investors are strongly demanding that Focus on areas beyond the open market.” In a statement.

This Private capital The industry has accumulated nearly 2.5 tons of “dry powder”-funds that investors have promised to invest but have not yet deployed. This highlights the fierce competition for attractive deals and has led some analysts to warn that returns cannot remain as strong as they have been in history.

Email: robin.wigglesworth@ft.com

Twitter: @robinwigg