Private Markets Crystal Ball: Out (Mostly) with the Anecdotes; In with the Data


Private Markets Crystal Ball: Out (Mostly) with the Anecdotes; In with the Data
By John Brecker, Principal

Riddle me this: How many times have you heard any of these statements being uttered on panels at the last private markets conference you attended?

  • “Things feel expensive.”
  • “Leverage levels feel like they are up.”
  • “Valuations seem out of control.”
  • “Fundraising looks hot right now.”

In an asset class that continues to grow and mature, why do so many investors, consultants, GPs and other industry participants continue to rely on “look” and “feel” instead of actual data? The answer is simple – and, as you’ve no doubt heard from us already – data in this asset class is difficult to come by. Further, once you gain insight into some much-needed data, you inevitably question its accuracy. And, by the way, you should.

Fortunately, we at Hamilton Lane have amassed a large amount of reliable and representative industry data, and we use it to inform our opinions on constructing private markets portfolios on behalf of our clients. Demonstrating our commitment to furthering transparency and accuracy of information in this asset class, each year our team mines our proprietary database to assess the current state of the private markets and make predictions about where the markets are headed based on that analysis. Throughout the fall, and for the twelfth year running, our team revealed its findings in presentations of the Hamilton Lane Market Overview all around the globe.

This year, for the first time, we brought the Market Overview “world tour” to Chicago, where we had the good fortune to be joined by our clients, partners and friends. Managing Directors and Investment Committee members Jeff Meeker and Steve Brennan took the audience through the presentation, which covered everything from the latest data on fundraising, leverage levels, valuations, GP behavior, and other trending topics, including where we see opportunities and where we may have concerns in the current market.

Every year, we spend time analyzing the fundraising market, and this year we predicted that 2017 could prove to be a record-breaking year for the private markets, with our current fundraising estimate at more than $800 billion.1

A trending topic we tackled for the first time this year was the use of lines of credit. With all of the noise surrounding this oft-vilified concept, we dug into our data and found that usage of credit lines has increased from around 60% to a full 90% of general partners.2 Despite media headlines and conference circuit chatter on this topic, 52% of GPs polled in a survey we conducted said that lines of credit usage has had a positive impact on performance.2

This year’s overview also took an in-depth look at LP behavior, some of which we found potentially troubling. As LPs are faced with putting more capital to work in the private markets, GPs have reacted with a proliferation of new approaches to how those funds are raised and structured – some of which we think are good, while some are more questionable. While it remains to be seen how this trend will ultimately play out, with the large amount of capital flowing into these funds, we as an industry should pay close attention to this trend.

The Market Overview also sparked some interesting post-event conversations, including lengthy discussions around how our partners can improve their private markets programs in light of the evolution and maturation of the asset class. One of the themes in this year’s overview had to do with operational improvements, specifically, how limited partners should start investing more in their own infrastructure and resources, as well as in what ways they can use enhanced data and analytics as a basis for more of their investment decisions. These are topics we’re always happy to opine on, as we see them as highly overlooked areas of improvement for private markets participants.

It was another successful season of Market Overview events, and we’re grateful to have been able to present to this group in Chicago for the first time. If you couldn’t attend one of our Market Overview presentations this year and would like to learn more, check out our Market Overview landing page

1 Source: Cobalt
2 2017 Hamilton Lane GP Dashboard

Succession Planning - 2017 GP Dashboard
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