EY Global PE Watch 2018
Despite PE’s growth, substantial headroom remains
Spoiler alert: while the PE industry has changed and evolved in many dramatic ways, fundamentally it remains the same. At the root of PE’s unprecedented record of growth, value creation, continual innovation and sustained outperformance is its superior governance structure. This is achieved through a concentration of ownership and the alignment of limited partner (LP) and general partner (GP) interests. Structurally, the engine that powers PE and its ability to transform companies has not changed over the past 10 years. Indeed, the two key metrics of alignment — profit sharing (which has been holding steady at around 20%) and GP commitments to funds (which
have slowly risen from an average of 2% in 2007 to 4% in 2016)2 — show that PE is as engaged as ever.
The PE industry has tremendous room to grow. For example, the value of private equity portfolio companies is estimated to be equivalent to just 3% of the $81 trillion in publicly traded shareholder value.3 And while the universe of public companies is shrinking – in the US for example, the number of listed companies has declined by 50% over the last 20 years — the growth of PE and private capital generally has meant that opportunities for private companies is growing dramatically. Experimentation and innovation within private capital continue to see new fund structures and product offerings develop that provide funding to companies at virtually all stages of their life cycle and
products with a broader array of risk/return profiles for potential investors.
So, what does this mean for PE fundraising, investments and exits specifically?