The private markets are having a moment, and firms diving-in are seeing higher market capitalisations. But can they ride the wave without wiping out?
Two years ago, we worked with a firm entrenched in public markets. They were hesitant to pivot, despite shrinking profit margins and the low dispersion of returns in public equities. We finally made the pivot into private markets, and it wasn’t just a step; it was a leap into uncharted waters. The outcome? A significant uptick in market cap. But it wasn’t easy, and it required a whole new playbook.
Private markets are booming – offering higher yields, diversification, and acting as a hedge against inflation. The growth is undeniable, with private market assets projected to grow at a 9% CAGR through 2033, vastly outpacing public markets. But tapping into this growth isn’t as simple as redirecting investments; it demands new focus and capabilities.
From our experience, many companies think they can bridge the gap through acquisitions. It sounds straightforward – buy the expertise you lack. However, we’ve seen many of these deals fail to deliver the expected benefits. One acquisition we were involved with had all the right ingredients on paper, but cultural differences between the firms and ineffective integration led to a bumpy ride. It was a reminder that buying into the private market isn’t just about financials; it’s about aligning cultures, systems, and people.
What it will take to adapt:
→ Define where to play and how to win. Understand your starting point and ultimate ambition for private markets.
→ Develop new front-to-back-office capabilities. Train your salesforce, onboard product specialists, and redesign operations, technology, risk, and legal processes.
→ Educate investors about risks and working capital implications. Communicate about liquidity, collateralisation, and streamlined reporting and tax filing processes.
→ Adapt sales and marketing. Utilise digital platforms, train sales reps, and develop relationships with wealth managers.
→ Improve M&A integration skills. Blend talent, culture, and operations effectively, especially during acquisitions.
So, as private markets swell, the question is: are you ready to develop the right capabilities to ride this wave, or will you be left watching from the shore?