2 minute read
Meketa Investment Group
TODD SILVERMAN
JOHN HAGGARTY
As we look ahead to 2022 and despite expected continued uncertainty and inflated asset values, more than anything else we expect to stay the course. We recognise that private equity is a long-term asset class and believe investors are generally best served by maintaining a long-term view, and not trying to time the market. With the growth in fund sizes, accelerated deployment, greater competition, mounting dry powder and high prices, we are doubly focused on risk and ways to mitigate it, via hands-on capabilities, alignment with GPs and pricing discipline.
Investing with top managers remains critical, and many of the traits we seek in those managers have not changed – these include team continuity, strong track records, defensible advantages in the market and a demonstrated ability to add value. Managers themselves must remain nimble and willing to evolve. The successful firms of tomorrow will innovate and find new ways of adding value with specialists in recruiting, capital markets, and other areas.
Though we still see room for generalist strategies, we consider sector expertise as logical and appealing in an increasingly competitive market. This is particularly true in niche, regulated and trend dependent sectors like healthcare, technology and consumer. We remain interested in venture capital strategies, including life sciences, and expect technology to drive investment opportunities and returns, supported by accommodative public markets, and despite lofty valuations.
Of course, we will always need to adapt to new opportunities and challenges. Capital deployment continues at a rapid pace and fundraising cycles are compressed. Previously, GPs typically raised new funds every four or five years, but today they may return to market after two years. As a result, some investors may seek to revisit exposures and focus attention on a select group of core managers.
Additionally, exceptionally strong private equity performance over the past 18 months has many programmes at the top of their desired allocation ranges. We expect this to further the trend towards finding liquidity solutions – either through GP-led fund restructurings, or more targeted use of the secondary market. Until recently, secondary pricing seemed to largely favour sellers over buyers. More recent signs now show a better balance of supply and demand.
Lastly, we see increasing opportunities for LPs who focus on ESG factors in their research and on emerging managers. ESG is no longer a specialised part of the market, but rather it’s recognised, at both the investment strategy and firm level, as an avenue through which to create value. Similarly, emerging managers are the future of the industry and very often offer better alignment with LPs with respect to economics and motivation. While the desirable characteristics for successful managers have not changed, the profile and composition of those teams will continue to evolve. As always, relationships and manager selection remain paramount.
Overall, we enter 2022 optimistic for the future, cautious of the challenges ahead, and confident that the long-term view and approach will continue to pay off for investors.
