Busting three myths in the $19T private market: Hamilton Lane

New report provides data-backed analysis of private market investments.

Following on from a report this week that shows rising confidence in private market investments, there’s a new analysis of the asset class from a leading investment manager in the space.

Hamilton Lane’s 2024 Market Overview provides an analysis of the market drawn from the firm’s database that covers almost $19 trillion in assets and 52 vintage years. The report aims to debunk some of the myths and misconceptions about investing in private market assets.

One of the most frequent concerns that investors may have is that private market investment valuations are not accurate, perhaps due to their opaque nature compared to public market counterparts.

However, the report says that outperformance of private markets in 2022 and their continued performance in 2023 is generally because of stronger revenue and EBITDA than public companies. With private equity’s history of better sector selection and identifying growth opportunities, general partners are confident in the positive trajectory, while managers are expected to maintain their tendency to exit deals at a premium to carrying value.

But what about the fundraising environment which remains challenging? While Hamilton Lane acknowledges this, and that it is the larger firms that are faring better, its Private Wealth Survey found that 75% of respondents plan to increase allocations to private markets in the 2024. Plus, 2023 data suggests 2023 will be the seventh largest fundraising year ever.

SUSTAINABLE UNSUSTAINABLE?

Thirdly, there is concern that private markets’ focus on sustainability will weaken the market’s historically strong performance.

While the firm’s research accepts that since the start of the 21^st century and up until the second half of the last decade sustainable investments trailed non-sustainable. But this has changed and the report states that “deal-level returns – particularly relevant given 39% of sustainable investments are in the venture sphere – for sustainable and non-sustainable investments historically have virtually the same return profiles.”

This suggests that a focus on sustainable investments is not destined for a materially negative impact on returns. “Hamilton Lane predicts sustainable investing will become more mainstream as investors recognize that it does not inevitably result in sacrificed performance,” the report concludes.

“As new investors enter the asset class and we continue to navigate a broadly challenging economic climate in 2024, the need for data-oriented analysis becomes even more important,” Mario Giannini, Hamilton Lane executive co-chairman and author of the Market Overview, said in a statement. “This year’s Market Overview finds that overall, private markets remain resilient, despite skepticism and nerves driven by slow fundraising. In our view, investors must get comfortable making hard decisions, and must be able to separate fact from fiction. That matters today more than ever.”