As the alternative assets industry continues to grow, Preqin is launching an initiative examining the Future of Alternatives. In conjunction with key industry participants, we take a five-year look into the future to see where the market will be, what changes fund managers are planning for and how investors plan to invest in 2023.
This contribution is provided by Michael Murphy, Managing Director and Co-Head of the Private Fund Group, Credit Suisse.
While I expect there will be secular growth across all asset classes, due to increases in both global assets under management and in allocations to alternatives, there are some particular niches that I expect will undergo outsized levels of expansion – namely long-hold funds and funds offering flexible growth capital solutions.
Long-hold funds are a fairly recent addition to the private markets landscape but represent an area that has the potential for rapid growth. An offshoot of the traditional buyout fund, long-hold funds look to hold assets for longer than the traditional c.3-5 years, enabling GPs to maximize value and avoid pressure to sell assets prematurely or at an inopportune point in the market cycle. While they often offer lower IRRs, they benefit from more compounding, which may better bridge the asset-liability gap that certain LPs face. As LPs continue to diversify their portfolios, the Credit Suisse Private Fund Group (CS PFG) believes that long-hold funds will prove a popular option. While long-hold funds have been broadly the preserve of the largest multiproduct mega-managers thus far, the CS PFG raised a $1.8bn long-hold vehicle for a middle-market manager this year and believes that LP demand for such vehicles in the middle market will continue to grow.
While buyout funds continue to proliferate, many GPs have noticed that there is a whole universe of companies that need growth capital but do not want to sell the majority of their equity and thereby lose control of their business. I expect that funds offering flexible solutions to such companies are set for expansion over the coming years. By offering a mix of debt, mezzanine, preferred and minority equity solutions, such GPs can position themselves as a one-stop solutions provider, accessing a deep pool of attractive, growing companies. As LPs in particular start to notice the differentiated access such flexible growth capital solutions funds can offer, I expect that the number of GPs offering such funds will expand to match the LP demand.
Download your copy of the Preqin: The Future of Alternatives here.