Private equity is a high-risk, high-reward business where financial reward accrues to the shareholder, who is typically an institution or institutional investor. The private equity industry’s broad scope encompasses a wide range of investment strategies and asset classes. These assets can include privately held companies, publicly-traded ones with less than ten employees and assets under management (AUM) of less than US$50 million in size, microcap stocks, and venture capital investments.
According to Mark Hauser, private equity firms experienced growth in 2021 despite the Covid19 pandemic. Central banks gave private equity firms relief capital to help them cope with the economic crises that occurred in the aftermath of the pandemic. This allowed private equity firms to further expand their operations. The firms gave out debt and equity capital to small businesses that were hit hard by the recession.
According to Mark Hauser, technology-driven innovation is one key trend experienced in 2022 and it is expected to continue in the future. According to Hauser, technology is becoming an important market for private equity firms because it offers companies with very low revenues and few assets access to capital markets. Technology can be used as collateral if needed by banks in lending private equity firms money. This helps leverage the private equity firms’ investment activities.
Hauser describes the diversification of portfolios as another trend experienced in 2022. Due to its high market value, real estate has historically been one of the private equity firm portfolio’s core investments. Described by Hauser as “resistant to the recession” the private equity industry has been expanding into industries such as technology, health care, and education. Although these new investments have increased shares of non-real estate holdings owned by private equity firms they are still relatively small in proportion to their overall portfolio.
Mark Hauser describes another trend experienced in 2022, which he believes will have a profound impact on private equity: ESG Investments. Hauser believes that a growing number of private equity firms are investing their clients’ money in ESG. Such investments are getting more traction from private equity investors and this trend will only continue throughout the next decade.