Whether it’s Hillary Clinton or Donald Trump who emerges as the winner of the United States presidential election, one thing looks clear to us: Public stock markets, fixed income instruments, currencies, and the general macroeconomic outlook for the world will remain subject to extreme uncertainty, and prey to considerable volatility, especially given the ramifications of an America that will remain exceptionally polarized. The potential of destabilizing political gridlock in the U.S., combined with slow global economic growth, also makes it highly probable that today’s near-record low interest rates will persist well into the future.
|Private Equity is an Investment Style That Stands up Well to Shocks|
We would posit that by reinforcing global economic uncertainty, this year’s polarizing U.S. presidential election process favors only one investment category: private equity. The activist, long-term investment approach that defines private equity – it’s an investment style rather than a particular type of asset – insulates it from shocks and gives it a micro focus that’s largely uncorrelated with overall economic slowdown and volatility. Indeed, current private equity investors are so enamoured with PE that 70 percent intend to increase their 2016 allocation relative to other investments, according to a recent Palico survey of 106 limited partners.
|Remarkable Growth Likely to Accelerate|
Private equity has grown from a small blip on the financial landscape to an investment style embracing all asset categories, from credit to real assets. The young investment class’ assets under management have increased to $4.3 trillion from a mere $30 billion a quarter century ago. Private equity assets under management could grow nearly three-and-a-half fold over the next 10 years, to $15 trillion, or to an estimated 3 percent of global financial assets from today’s 1.5 percent, if historic growth rates continue. That’s a base case scenario. Private equity will grow even more strongly in the face of increased economic uncertainty and public market volatility.
|A Marketplace that can Handle PE Growth and Diversity|
With private equity’s activist, long-term investment approach now encompassing all asset classes and regions, it’s hard to navigate PE just with traditional means. From their desktop or smart devices, investors can now explore $53.4 billion of primary, secondary and co-investment opportunities on Palico’s online marketplace. Palico’s mission is to meet the challenges of a much larger and more diverse private equity universe.