Investors are increasingly turning to the private markets, with private equity funds raising $1.5tn globally in 2021, a 46% increase on the previous year. This surge is driven by low interest rates and the prospect of higher returns, as well as the desire to diversify portfolios. Despite concerns over inflated valuations, the trend is expected to continue, with more than $2tn predicted to be raised this year.
In the UK, the private equity industry is booming, with the value of deals hitting a record £67bn in 2021, up from £49bn in 2020. This growth is attributed to the availability of cheap debt and the abundance of dry powder, or unspent capital. The industry is also benefiting from government support, with the British Business Bank committing over £1bn to venture capital funds.
However, the rise of private equity has sparked debate. Critics argue that it leads to job losses and financial instability, while supporters claim it drives innovation and growth. The UK government is currently reviewing the sector, with potential reforms including greater transparency and stricter regulations.
Private equity is also making inroads into the public markets. SPACs, or special purpose acquisition companies, have become a popular route for private companies to go public, with $160bn raised globally in 2021. Despite regulatory scrutiny, SPACs are expected to remain a significant feature of the financial landscape.
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