For yield-hungry investors, private equity has been one of the more attractive asset classes in recent years and it is unlikely to lose its appeal given the lower returns expected from more traditional investments over the coming year.
However, 2017 may offer some challenges. There are signs private equity may be near the top of the cycle: with valuations some consider stretched, deteriorating credit conditions and private equity firms struggling to put un-invested cash to work.
Although we expect private equity to continue to outperform public equity markets on a relative basis, investors may need to be more discerning – looking at more contrarian strategies: special situations, more illiquid strategies and those that are geographically diverse.
For investors who have so far focused on developed markets, the emerging markets could be a potential hunting ground. Private equity opportunities in emerging markets tend to be much less leveraged, operate in higher growth environments and valuations tend to be lower than in the public markets, meaning they do not look, in our opinion, as stretched as those in the US and Europe. Many businesses have also evolved over the past decade to be formidable competitors on the global stage.
Ralph Jaeger – Siguler Guff, a BNY Mellon company