A recently published 2023 research report conducted by Hamilton Lane, a private markets investment management firm, found that private investments outperformed public markets in 2022.
The report uses data to review and analyze private markets investment activity in 2022 with predictions for 2023, underscored by Hamilton Lane’s database.
The report provides data that demonstrates how private equity has outperformed public markets, not just in 2022 but “across long-term timeframes and through market cycles.”
Despite the downward pressure applied by rising interest rates and inflation in 2022, the data shows that as of the third quarter 2022, overall private markets demonstrated more resilience than public markets, outperforming public strategies across the board. For example, Hamilton Lane says buyout outperformed the S&P 500 by nearly 2,050 basis points, while infrastructure and real estate beat the FTSE All Equity REITs Index by more than 3,400 basis points.
The firm predicts that private credit, secondaries and infrastructure will provide compelling opportunities in the year ahead with heightened interest in investing in energy transition assets. Hamilton Lane claims the contractual structures that characterize many types of infrastructure investments may also provide a hedge against inflation, should it run rampant.
The report shows that access to the private markets has expanded significantly, with products structured to appeal specifically to non-institutional investors. These offerings resolve some of the friction of traditional private markets funds and provide retail investors expanded access to private markets products.
Today, net asset value in the retail space is dominated by a few large players, with the report finding that more than 50% of assets under management is concentrated in the three largest managers in 2022. The firm says this presents some amount of risk, where the future of semi-liquid funds will inevitably be tied to the success of a few managers.
However, the report also notes that a similar dynamic existed with private equity in the 1980s, with nearly 60% of AUM concentrated in the three largest managers. As private equity gained acceptance, a flood of managers entered the space, decreasing that concentration and spurring the growth of the industry. The firm says it poses the question of whether this will play out within the semi-liquid space as well, or whether there will continue to be a few large winners.
Overall, Hamilton Lane expects volatility to persist throughout 2023, as investors cope with inflation, interest rate movements and ongoing geopolitical disputes. Despite this, the 2023 Market Overview finds that the private markets have continued to provide the “attractive returns that investors seek,” with distinct areas of opportunity in the year ahead.
“The asset class is evolving in offerings and structure to meet the demands of a varied and growing set of investors,” Mario Giannini, chief executive officer of Hamilton Lane and author of the report, said. “Those who employ discipline, stay consistent across sectors and through cycles, and view the private markets as a long-term asset class will be best positioned. Perhaps unsurprisingly, we at Hamilton Lane continue to be big believers in this asset class, where data clearly illustrate multiple decades of outperformance versus public market benchmarks.”
Hamilton Lane is one of the largest private markets investment firms globally. The firm has nearly $832 billion in assets under management and supervision, composed of nearly $108 billion in discretionary assets and over $724 billion in non-discretionary assets, as of Dec. 31, 2022.
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