What niches within the PE space are going to see a lot of growth over these next 5-10 years? Corporate PE seems oversaturated, and GE has been doing well in the long-term but has clearly taken a beating recently. It looks like Private Credit is having its moment now, and perhaps not 5-10 years down the line. Which Private Market strategies do you expect to grow the most?
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Secondaries the most. I expect growth in all asset classes though, with HFs and VC as a whole being the laggards.
Would you say secondaries is a good place to get into if you an incoming FT? I know recruiting starts super early, so wanted to know what are good areas in the buy-side to go into post 2 years as an analyst at a BB/EB.
If you are really interested in secondaries consider a sell-side spot at one of the big PCA firms for the summer/FT. Lots of teams are hiring, they tend to have good dealflow, high comp, and are vertical-agnostic, so a good spot to check out the different niches within secondaries.
Infrastructure / energy
secondaries / GP stakes
Would you say that it's a good place to enter after 2 years of IB at a BB/EB? I am going FT in 2024, and know the recruiting cycle is super early so want to get into a strategy that will be a growth space in the upcoming years. Am not a particular fan of corporate PE just because it seems so consolidated, so am looking for other options.
Tech - Traditional buyout firms have been interested in mature tech companies for a while (advent, vista, etc) but we’re seeing PE wade more into growth stage.
Services - specifically high labor cost industries like consulting, accounting, education. AI will enable productivity that makes these sectors much more appealing to PE.
More niche-y areas would be cybersecurity, data centers, intra-Asia, and EMEA real estate. These are all areas KKR and Blackstone are targeting with newest funds.
How about co investing?
This is not a strategy
Bit of a grey area but I’d argue it is. Think about it from an LP’s perspective, they have a specific allocation to buyout, vc, ge, hybrid, secondaries, public equities, etc. This would also include co-investments as it’s competing for dollars from other “strategies” so, I’d argue it qualifies. And yes, it will be growing, LPs are always looking for ways to reduce their fees and GPs are increasingly offering co-investment as a strategy to attract more LPs given the challenging fundraising environment.
To answer OP’s question, again, follow the LPs. The two strategies they plan to increase allocations to the most are PC and Secondaries. This can of course change as the environment changes but going into ‘24 that’s what all the surveys point to.
GP Stakes is going to be a growing area, although I'm not sure how strong the returns will ultimately be.
A lot of folks have put secondaries here, but that is likely too broad. Vanilla LP led secondaries are somewhat less attractive from a growth perspective, but GP leds represent a compelling area to try your hand. Further, some non-traditional, special situations style secondaries will be an interesting place to be.
This is sort of true in the sense that the GP-led market has relatively more room to run as it’s more under capitalized than the LP-led market.
That said, as allocations to secondaries increase it’s going to end up in both buckets. The attraction of secondaries is the consistency of returns and quick distributions which historically has been attributed to the LP-led market. Additionally, the large discounts that buyers are currently getting are on the LP-led side. GP-leds are still mostly being completed within a 10% discount of RD NAV (more if based on closing date). I don’t really see that changing as typically GPs just aren’t comfortable taking something to their LPs at anything larger than 10%.
The way I see it playing out is new LPs will likely commit most of their capital to LP-leds and maybe a smaller commitment to GP-leds (either directly or through a mixed strategy fund). Then LPs that already have exposure to secondaries will likely be the biggest contributors to GP-led funds. While both are “secondaries” they have different return profiles. GP-leds can be very attractive, but they are still nascent and I think LPs are more comfortable with traditional secondaries.
Just my thoughts, curious if anyone on the LP side has input.
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