The Year Ahead
Most would agree we are living in strange times these days, somewhere between a science fiction novel and an Orwellian dystopia, and a lot of uncertainty - especially in the market.
2021 turbocharged the US money printing machine with no OFF switch, with historic inflation and all time highs across asset classes. From lofty stock market multiples to interstellar venture rounds, anything with growth potential seemed to be "up only." Now, we're a few weeks into the new year and have already seen another spike in the pandemic, exacerbated geopolitical tensions with Russia (and China), and heavy volatility across the board. These macro themes will no doubt have a myriad of rippling effects, hopefully not too drastic, and while it is difficult to reliably predict specific outcomes, here are a few themes we expect to see in the private markets in 2022.
More Institutional Investing - Despite more dry powder committed to private markets than ever before, most institutional investor types are still under-allocated to this asset class. We expect private market investment allocations and deployments to continue to grow in 2022. Globally, we believe we will see this trend accelerate even further on a relative basis, as two main forces converge. First - regulation is expanding in many regions to allow broader mandates for institutional LP's (ex. sovereign wealth and pension funds, etc.) to access domestic and foreign private markets. Second - traditionally conservative investors are becoming more comfortable with inclusion of private investment in their overall exposure.
But with Secondaries - With institutional investment comes institutional mandates, and the world's end asset owners bring strict asset allocation and rebalancing requirements to meet future return, risk, and liability planning goals. As a result, with private market assets priced where they are, expect to see investors who have already gained significant exposure to take chips off the table via secondary offerings at both the fund and direct investment level.
Geographic Expansion - Covid-19 opened the world up to more remote work, as global teams and a flexible office presence are the norm these days. Coupled with a search for diversification and cheaper valuations, expect investors to continue to expand their reach abroad in 2022.
Digitization of Portfolio Operations - we would be remiss in not calling out the mega trend we are witnessing across GP's and LP's in their search for better technologies to manage their portfolios (wink solutions like Clockwork). With the increased need for speed, efficiency, risk mitigation, and cost savings, expect investor groups to continue to evolve passed infrastructure built entirely off of one Excel master sheet and email.
Crypto / Web 3 / Blockchain - call it what you want, but crypto's influence on the private investment ecosystem over the past several years can't be ignored, particularly based on the absolute boom in 2021. While we expect to see continued investments in the technologies themselves, we also think private markets will witness more crypto innovation in how deals are structured and closed, employees incentivized and paid, and even how businesses are managed and governed all together (ex. DAO voting).