The time is right to look at some key trends in private equity
The private equity industry tends to slow down in the summer months, and as we move into the fourth quarter of the year, the time is right to look at a few of the key trends that have influenced managers so far during 2021. At a high level, the themes might look familiar, but by taking a closer look we see an industry evolving based on market conditions, investor demand, and technology.
New ways to meet growth targets
Allocation into private equity continues to grow across the industry and is predicted to reach $5.8t by 20251. The added dry powder in the market has driven up purchase prices and made deals more competitive than ever. As a result, funds are now looking for new ways to meet their growth targets. The Harvard Business Review reports that the next frontier of funds is supporting their portfolio companies by creating a connected ecosystem across their active investments. This new form of value creation enables companies to leverage common services, supply chains, or technology to reduce cost and support best practice across all management teams. One example cited a $550m in cumulative savings across the portfolio by coordinating procurement strategies2. This trend will undoubtedly continue as PE funds further shape their portfolios around new business ecosystems.
Diversification of PE allocations
Private Equity is as strong as ever as European LPs viewed the asset class favourably in the first half of the year. According to a recent Pitchbook article, LPs invested a record-breaking amount of capital, €59.6b, into PE in the 1H of 2021. But even with the record amounts, LPs focused on larger funds as fund counts were at a nine-year low3. LPs ultimately invested more capital with more established funds as a safety measure coming out of the pandemic. Another side effect of the pandemic was the lack of travel, as new mangers found it hard to build trust with LPs remotely. The prevailing expectation is LPs will again look to diversify their PE allocations and move back toward smaller funds with either sector and/or environmental focus in the coming two years.
Connecting data and technology
Embracing digital tools is not a new concept and many articles have covered this topic over the years, however, as technology has evolved, funds are now able to do more with the tools at hand. The latest trend brings together data and technology to meet the growing needs of today’s investors. LPs are demanding more information as they have more sophisticated models and risk profiles, and in turn GPs are asked to provide more dynamic information about the performance of their portfolio companies4. The GPs in the driver seat are utilizing data warehouse technology to bring together data across their front, middle, and back office. By connecting their data in a data warehouse, GPs can then leverage best of breed BI reporting tools like Microsoft Power BI and Tableau to easily meet the growing data requirements of their investors.
Helping private equity adapt to the ever-changing landscape
We have many questions on where each trend goes from here. What new innovative ways will GPs look to drive value with their portfolio companies? Will LPs focus on ESG continue to push the market move to greater climate and social transparency? How will technology evolve to meet the new complex data needs of today’s GP? At UNTAP by EXM we look forward to partnering with our clients to adapt to the ever-changing private equity landscape.
James leads the Business Development efforts at UNTAP. After spending the previous 7 years with Altvia, a leading CRM technology provider for Private Equity, James joined the UNTAP team in 2020. James has excelled at selling SaaS products into new markets and partnered with top funds to digitise their operations. He relocated from Denver to London in 2018 to open Altvia’s UK office and lead sales and operations across the UK and Europe. James holds a BA in Economics from Colorado College and he and his wife have traded life in the Rocky Mountains for a new home in London.
 The growing private equity market How PE firms can use expertise, technology, and agility to exceed stakeholder expectations https://www2.deloitte.com/us/en/insights/industry/financial-services/private-equity-industry-forecast.html
 Private Equity’s Mid-Life Crisis, Karim Kharallah, Harvard Business Review
 European PE Breakdown Q2 2021 Pitchbook https://files.pitchbook.com/website/files/pdf/PitchBook_Q2_2021_European_PE_Breakdown.pdf