What are the clear dividing lines for private markets?

Please note: This article is more technical in nature than our typical articles, and may require some background knowledge and experience in investing to understand the themes that we explore below.

All data referenced in this article are sourced from Bloomberg unless otherwise stated, and is accurate at the time of publishing.

Key points

• Public markets, like stock exchanges, are familiar to many investors. While private markets offer additional investment options, particularly in sectors like IT – they can often involve longer investment horizons. Public markets tend to have a heavier concentration in North America, while private markets show a stronger presence in Europe and Asia-Pacific 
• Recent trends within private markets reveal a surge in deals related to Artificial Intelligence and Big Data
• Buyout and venture capital transactions are the leading deal types in private markets, making up around a quarter of all deals – with Limited Partner structures another notable category
• Private market investments can offer the potential for higher returns, although they also present challenges like illiquidity and extended lock-up periods. Yet, these lengthy investment horizons can also align well with the goals of long-term investors

Private market investing typically involves longer-term commitments, often spanning ten years, during which investors allocate capital and receive income and capital distributions. Despite the challenges posed by illiquidity and extended lock-up periods, the investment landscape keeps changing, in turn creating several opportunities that are influenced by macroeconomic, technological and emerging thematic trends.

Deriving insights from the data

To fully grasp the shifting private market landscape and put it in perspective with public markets, geographic and industrial exposure, investment trends and transactional modalities, examining transactional data can help. 

The article is designed to shine a brighter light on current private market dynamics and investment trends. 

Equity markets and geographical exposure

To better understand how private and public markets might react to different macroeconomic circumstances, geographic exposure data can be useful.

Generally, the geographical exposure of private and public markets is similar. Still, public markets are tilted towards North America, which accounts for around two-thirds of the market capitalisation, while in private markets the region weighs in at only one-half. As a consequence, private equity markets have higher allocations to Asia-Pacific and Europe.

Examining the shifts in regional allocations over the past decade reveals a stable allocation to North America, while the Asia-Pacific (Europe) region shows gradual but consistent growth (decline). Notably, the Middle East has witnessed the biggest relative growth in private equity transactions.

The fabric of equity markets

Now to turn and examine how allocations vary across different industries in public and private equity markets in the US, eurozone, Asia-Pacific and globally. Three notable observations arise. 

First, the industry breakdown for public and private equity markets is most similar at the global level, followed by the US. Meanwhile, Asia-Pacific has seen more deviations, while the disparities in industry composition are most pronounced in the eurozone.

Public and private equity industry weights

A comparison of the industry composition of the US, eurozone, Asia-Pacific(APAC) and global public and private equity markets.  

Second, there is a systematic tendency for certain industries to be more, or less, represented in private markets than in public ones across all examined regions. Specifically, the former’s allocations appear to more inclined to healthcare, information technology and business services. Alternatively, financial and insurance services, energy and utilities, and consumer discretionary are less prominent.

Last, healthcare and information technology rank among the top industries to have grown transactions since the COVID-19 pandemic, compared to the corresponding period prior to 2020. This seems unsurprising considering that the surge in demand for healthcare in recent years, the increasing popularity of remote work and some notable recent technological breakthroughs.

Decoding the wisdom of crowds

A more thorough examination of aggregate deal value by industry, including say highly specialised niche investments, reveals that artificial intelligence and Big Data are the dominant forces in the private markets. These themes often can blur the traditional boundaries between industries. 

Applications of artificial intelligence and Big Data dominate private market deals

The change in the relative aggregate deal value across the most popular investment themes over the last two decades

Although the manufacturing sector remains one of the biggest and has grown over the last two years, its share has plunged by half over the past two decades. Likewise, e-commerce has lost share since 2014. While mobile apps is one of the largest segments, there are indications that momentum has waned over the past three years.

Conversely, smaller segments, such as blockchain, virtual reality and electric and hybrid vehicles (the latter two not depicted in the chart due to their minor share), have seen substantial growth in their aggregate deal value over the past five to ten years.

With each handshake, a unique journey unfolds

To complete this overview, we examine the market share of various deal types in private markets. Buyout and venture capital trade sales, involving the disposal of a portfolio company to another entity, constitute the largest segment, comprising approximately one-quarter of transactions.  

Public-to-private deals and Limited Partner’s direct investments in private companies follow closely behind, collectively matching the share of trade sales. However, while the former has remained stagnant, in terms of deals share, the latter displays the most positive trend over the last five years. 

Less prevalent, but increasingly prominent, transaction types include pre-initial public offering deals, seed investments and corporate carve-outs.

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