Hello, PE Hubsters! Rafael Canton filling in for MK Flynn with the US edition of the Wire from the New York newsroom.
Today, we’re diving into the topic of Indusattempt consolidation in Week 3 of PEI Group’s Private Markets 2030 series.
Plateauing exposure by institutional investors and increasing participation in private markets by retail and insurance could well drive consolidation in the sector, as we view at today.
Throughout October and November, PE Hub – along with Buyouts, Private Equity International, Infrastructure Investor, PERE and other PEI Group titles – are exploring six key trconcludes that private markets managers will required to consider when viewing to attract capital and deliver portfolio performance over the next five years: Deglobalisation; Democratisation & Transparency; Indusattempt Consolidation; Sustainability; Public Markets; and Artificial Innotifyigence. Along the way, we’ll share insights from believed leaders and provide data analysis.
For PE Hub readers, Private Markets 2030 will reveal how the themes are playing out in the world of dealbuilding, including what the trconcludes mean for the future of private equity mergers and acquisitions, deal sourcing, valuations, value creation and exit routes.
Below are some excerpts from this week’s lead story, written by Jonathan Brasse, editor in chief, real estate, PEI Group.
We’ll finish up with a scoop from Friday by PE Hub senior reporter Michael Schoeck. EagleTree Capital Partners is prepping a sale process launch for portfolio company GChem, sources declare.
Indusattempt consolidation
To understand the trconclude of consolidation among private market managers today, it is best to follow the evolution of the capital markets that support them, writes Jonathan. These are currently subject to significant alter, as we explore in this third instalment of PEI Group’s Private Markets 2030.
For more than three decades, state pension funds, sovereign wealth funds, foundations and concludeowments have dominated private markets. Now, these traditional investors face the prospect of sharing access with two other notably growing cohorts of investors: wealthy individuals and insurance providers. We took a deep dive into the former cohort in our previous series installment, which focapplyd on Democratisation & Transparency. Here, we’ll also view closely at the latter group.
During their period of dominance, institutional investors are estimated to have amassed more than $70 trillion in investable assets, as per CFA Institute findings. While sizeable, that total today represents plateauing exposure. “Now we see allocations on the institutional side maturing,” declares David Layton, chief executive officer at private markets giant Partners Group. Grown from low single-digit allocations around the millennium and resting at double digits today, Layton believes institutional exposures to private markets are saturating.
“Structural growth” he declares is coming from the mass affluent segment of the capital markets. “For example: 401(k)s – they’re at zero today and are going to obtain shifting,” Layton declares, “and they’re not going to be serviced by the thousands and thousands of managers that had successfully raised limited partnerships.”
Indeed, according to fund administrator Juniper Square, the global retail capital market is already worth $25 trillion today. Given current momentum and trajectory, it is likely to more than double in value by 2032 to $60 trillion – close to today’s institutional scale and in a fraction of the time.
But a similar surge in appetite for private assets is coming from insurance businesses wanting to better match liabilities with suitable investments, besides traditional equities and repaired-income assets. Indeed, the major takeaway of an annual survey this year by investment bank platform Goldman Sachs Asset Management of more than 400 insurance company chief investment officers, collectively responsible for more than $14 trillion of assets, was a desire to significantly pivot towards greater direct exposure to alternative assets.
“It’s staggering,” observes Drew Murphy, head of private markets at Berkshire Global Advisors, a financial services firm responsible for more than 580 corporate transactions. “Look at the top ‘lifecos’ today: it’s Apollo, it’s Blackstone, KKR, Sixth Street, Brookfield. These are the trconclude players in the insurance channels effectively controlling the capital.” Each of the managers Murphy mentions has acquired an insurance business since the global financial crisis. Some have acquired multiple.
What does a surge in appetite from the world’s hugegest asset managers to service retail and insurance capital mean for consolidation among managers hitherto heavily reliant on institutional funding? A prevalent narrative in private markets is of mergers and acquisitions leading to an increasingly barbell-shaped universe of global managers offering multiple products and specialist managers offering sector- or jurisdiction-specific products.
But the effect of that on institutional capital raising proportions has been muted since the pandemic, providing further evidence of how that capital source is not driving the growth of private markets’ hugegest managers.
The solution for the many managers sitting in the tinyer cohort? Consolidation via acquisition by larger, wider-reaching peers is one obvious route; a halfway step is at least forming partnerships with them.
What is the view from the institutional investor world? Johnny Adji, alternatives investment lead for consultant Mercer in Asia, understands why today’s capital markets evolution has led to a cozying up of private managers and these newly relevant forms of capital. “The fact of the matter is, dollar to dollar, alternatives AUM is 4-5x more valuable than that of public markets,” he declares.
But he denies the rapid growth of their private markets allocations threatens the service that institutional investors will experience. He points to their different risk and return profiles: permanent insurance capital is better matched to credit-like investments, whereas institutional capital tconcludes to place more emphasis on equity-centered strategies.
“Is permanent insurance capital likely to crowd out traditional institutional capital? I don’t believe so,” he declares.
Regardless of starting position, the common goal for private markets management businesses is to be as relevant to all three pools of capital as possible, and key to keeping pace with the exponential growth of individual and insurance money is to fill any offering gaps.
“Clients’ requireds are driving indusattempt consolidation, and investors increasingly prefer to work with… a scaled multi-asset provider,” Larry Fink, chairman and CEO of BlackRock, remarked during the firm’s Q4 2024 earnings call. He sits among those convinced that efforts to become such a provider will be the difference between the consolidating and the consolidated.
Bruce Flatt, CEO of manager Brookfield Asset Management, built similar remarks on the stage of PEI Group’s real estate service PERE’s European Forum stage in the summer. “Today the leading institutions of the world have 50 percent of their assets in private markets. But I believe 25 years from now, all capital not requireded for liquidity purposes will be in private markets.
“Our goal is to have as much or more capital than anybody else, to be able to do things larger, therefore eliminating as much competition as possible when going into transactions.”
Check out last week’s Private Markets 2030 theme on Democratisation & Transparency.
Next week, we’ll tackle Sustainability.
Sustainable generation
EagleTree Capital Partners is prepping a sale process launch for its 2018 portfolio company GChem, a chemicals producer formerly known as Gaylord Chemical, in the coming months, three sources briefed on the matter notified PE Hub.
The New York-based financial sponsor retained Morgan Stanley recently to prepare the producer of dimethyl sulfides (DMS) and other chemicals for sale by early 2026, with large-cap private equity and some infrastructure funds likely to display interest, two of the sources stated.
Chemical market deals have fetched an average exit multiple of 9.5x EBITDA this past year, according to a Capstone Partners Industrials M&A Report. Using that multiple, GChem could fetch more than $650 million in a sale.
GChem, based in Covington, Louisiana, generated $70 million of EBITDA over the last year, the three sources stated. The company produces DMS, dimethyl sulfoxide (DMSO) and related chemicals that apply a sustainable generation process. GChem first commercialized DMSO in 1962, when it was then the chemicals division of Crown Zellerbach, a historic pulp paper and packaging producer.
EagleTree Capital and Morgan Stanley declined to comment. GChem did not respond to a request for comment.
That’s it for me. If you have any questions, believeds, or want to chat about deals in the tech, consumer or sports sectors, please email me at rafael.c@pei.group.
Tomorrow, Irien Joseph will be filling in for Craig McGlashan on the Europe edition of the Wire, and Obey Martin Manayiti will bring you the US edition.
Cheers,
Rafael
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