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Market-Based Solutions to Vital Economic Issues
Oct 16, 2019

A New Equilibrium: Private Equity‘s Growing Role in Capital Formation and the Critical Implications for Investors

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Defining a path for the future trajectory of private capital amid a shift in the way enterprises are funded

In 2017, new capital raised from private markets exceeded capital raised in public markets for the first time in the US. It was a development that went largely unnoticed,yet the implications are significant, wide ranging and ongoing.

Indeed, it is becoming increasingly apparent that we are in the middle of one of the most profound shifts in the capital markets since the 19th century, when public equity markets became widely accessible to investors and a broader array of enterprises seeking funding. Now, the way that companies are being funded is once again changing — and in the middle of that change are private equity (PE) and other private capital providers.

According to Preqin, globally, PE firms now manage commitments of an estimated US$3.4t, up from less than US$500b in 2000. Including other asset types in the private capital universe — infrastructure, real estate, private debt, natural resources, etc. — brings the total to more than US$6t. From their roots in commingled buyout and venture funds, PE firms have innovated a wide array of vehicles designed to provide funding at virtually all stages of a company’s life cycle — from seed, to growth capital, to newer long-life funds that are beginning to open the investable universe to entirely new types of businesses not suitable for more traditional fund structures.

Indeed, the growth of private capital concurrent with a decline in the number of listed companies is a dynamic that has significant implications for stakeholders across the capital markets. In the following pages, we seek to arrive at a more holistic view of the future of PE and private capital, and its future role in capital formation. We hope to contribute in a meaningful way to a conversation that is gaining importance with each passing month.

The EY organization and the the Kenan Institute for Private Capital

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