Private Markets: Achieving scalability to enable growth opportunities

Given recent, and projected continued, strong growth in the private markets industry, we will discuss how private markets managers can best organise their operations to grow and scale efficiently. This will be crucial to support their existing business and deal with the increased complexity that often comes with rapid growth.

We see tremendous growth opportunities for private market managers. Investor appetite for private markets remains strong despite the short-term uncertainties, and new strategies and client segments are accelerating this. This blog series will explore the implications for managers’ operating models if they are to make the most of this growth opportunity.

‘There appears to be no stopping private equity & venture capital (PEVC). Preqin’s forecast is for assets under management (AUM) to more than double from $4.41tn at the end of 2020 to $9.11tn in 2025, despite a pause in growth in 2020 caused by the coronavirus pandemic. We expect strong performance and net inflows into the asset class to drive a global growth rate of 15.6% over the period.’1

As AUM at private market managers has boomed over the past 10-15 years, firms have made tactical decisions to enable this growth. While in isolation these may have been the right decision at the time, in aggregate the consequence has been that internal operations (particularly in technology, data and back and middle office) have grown complex and inefficient. In many firms this is now hampering future growth. If companies want to continue with strong growth and scale effectively, we believe that an overhaul of their operating model will be needed. This will deliver two key benefits: ensuring scalability is embedded into their operations to drive profitability, and turning the operating model into an enabler and not an inhibitor of their growth.

By addressing these challenges now, private market managers will avoid having to conduct an even more complex and costly revamp in the future. We see many firms whose current models are inappropriate to support the business through their next phase of growth, and the further firms go down the line, the greater the eventual challenge to deliver a strategic operating model becomes.

Managers who have a handle on their operations, can more effectively leverage the latest technology and data solutions, and respond with agility to changing client and regulatory demands.

This is a key enabler for continued growth, particularly for expansion into new asset types, markets, product types, or client segments. Those firms that are able to flex their businesses to take advantage of, and be first movers into, new investment opportunities will likely be those that build competitive advantage.

Over this blog series, we will explore the key levers for private market managers to re-shape their operating models to achieve these outcomes. Future posts will consider winning operating model archetypes, discuss the opportunities for outsourcing ‘non-core’ capabilities, and consider the vital role of data and technology.

This is an enormously exciting time for the industry with huge growth opportunities to pursue. To make the most of these, we believe firms must put in place a scalable and agile operating model.

1 Source: Future of Alternatives 2025: Private Equity AUM Will Top $9tn in 2025 (preqin.com)