Developed in partnership with Oxford Economics.
Despite the volatility of world markets over the past two years, private markets continue to attract record capital inflows, with $128.3 billion raised in the U.S. for venture capital, according to Cambridge Associates and more than $1 trillion in total private equity deal value in 2021, as reported by PitchBook. The current environment of abundant liquidity and high valuation may eventually slow, but even if it continues, investors should consider the importance of minimizing investment risk and diversifying portfolios.
In Ben’s last white paper, we demonstrated the importance of looking across private asset classes rather than relying on fund selection. In 2022, we narrow our focus to examine how private markets are changing to accommodate a world in flux. This year’s global outlook investigates the growing importance of Geographic Diversification in Private Equity Markets, with emphasis on the following macroeconomic considerations and possible market impact:
- Investors can benefit from geographic diversification to help minimize market downside risks, participate in global economic growth, and reduce exposure to inflation risks and stretched valuations.
- Based on our Total Portfolio Management (TPM) framework and private market risk/return forecasts, 3 broad themes emerge from the allocation over the next 5 years:
- Geographical diversification in private equity markets can help to deliver higher risk-adjusted returns compared to a domestic-focused portfolio.
- Increasing exposure to Asia should be a key consideration for most investors.
- Our bear scenario analysis illustrates that shifting allocation toward advanced European economies can mitigate inflation risks while maintaining a high level of risk-adjusted returns.
- Foreign Exchange (FX) risk represents a significant hurdle to investing outside the U.S. given the uncertain outlook for the dollar.
- The potential for an extended bout of inflation also supports the case for diversification which could help investors pursue their financial goals while minimizing their downside risk.
At Ben, we have crafted a suite of reliable, ongoing liquidity solutions for investors in alternative assets. Our process seeks to give investors access to hard-earned investment capital, with liquidity provided from our own balance sheet. Contact us today to schedule a consultation with our expert team.
Download the full Geographic Diversification in Private Equity Markets white paper above or contact us today to discuss what Ben’s secondary market liquidity solutions could mean for you.