In a dramatic time for the public equity markets, private markets such as private equity and venture capital could be set to outperform, private-market proponents say.
The S&P 500 index is down 24% from its peak before the U.S. coronavirus crisis began in earnest, and shares of publicly traded private-equity firms, including Blackstone Group (ticker: BX), KKR (KKR), and Apollo Global Management (APO), are down even more.
While most private funds are only now beginning to report their results for the end of 2019, said Wendy Walker, managing director at Cambridge Associates, speaking at Big Path Capital’s virtual Impact Capitalism Summit on Tuesday, the 2008-09 experience suggests the outlook might be an optimistic one.
Research from Cambridge Associates showed that during the financial crisis, the S&P 500 was down 40% from peak to trough, while U.S. private equity fell only 25%, late-stage venture funds were down 15%, and early-stage venture funds were down “less than 10%,” said Walker. “These private-market valuations are slower to flow through.” One caveat: There was a V-shaped market and economic recovery in 2009, she pointed out. Without that, private funds could move lower.
In particular, attendees said, impact investments—those made to generate a measurable beneficial social or environmental impact along with a financial return—could outperform, despite the widely held belief that impact investing produces below-market returns.
According to the Global Impact Investing Network, the size of the global impact market is about $500 billion. Sustainable investment strategies are already outperforming in the public markets.
Jackie Rantanen, managing director at Hamilton Lane, an asset-management firm focused exclusively on the private markets, pointed out that 91% of impact investors surveyed by the network say their performance is in line with or exceeds both their impact and financial expectations. “There are more opportunities, more quality, but also true data and the ability to measure both on the financial and impact side” as more impact reporting proliferates from companies and investors, Rantanen said.