Head of business development, private markets at Schroders, Claire Smith has speculated that private equity returns could exceed returns on global equities in the second half of the year and into 2026 and do so with less volatility.
Once seen as a niche or high-risk asset, Smith noted that private equity is now a legitimate pathway to diversification and outperformance, particularly as listed equities have been volatile and bond markets have been up and down.
Highlighting historical data, Smith said over the 25 years to August 2024, the MSCI Burgiss Global Private Equity Index has outperformed the MSCI All Country Index by an average of 4 per cent a year.
However, during periods of market disruptions and heightened volatility – such as during the dotcom crash, the Global Financial Crisis, and the COVID-19 pandemic – private equity has typically outperformed global public markets by as much as 8 per cent a year.
“So it is clear that over the short term and the long term, private equity has been a strong performer compared to listed equities,” Smith said.
Explaining the strong performance, she noted that private market assets are often less exposed to the business cycle.
“Publicly listed equities and bonds are typically revalued every few minutes of the trading day, which can bring much greater volatility to investors’ portfolios. Private equity funds, however, are not valued daily, leading to returns that are typically smoother,” Smith said.
Ultimately, the head of business development noted that private equity also plays an important role in funding companies today that will be the large public markets companies of tomorrow.
“Investing in companies before they list can deliver very attractive returns to investors compared to listed equities,” she added.
Private equity’s growth potential was recently recognised by global wealth giant BlackRock, which at its recent Investor Day pinpointed the expansion of private markets into the wealth channel as a central pillar of its strategy to double its market capitalisation by 2030.
Namely, the asset manager outlined bold 2030 targets, including lifting its market cap from US$140 billion to US$280 billion, achieving at least 5 per cent annual organic base fee growth, and boosting revenue from US$20 billion to US$35 billion.
To achieve this, it plans to launch at least four new US$500 million businesses, including one focused on “private markets to wealth” – offering scalable, personalised portfolios combining public and private assets.
“We believe BlackRock’s private market capabilities are now designed to support best-in-class outcomes for clients. We have leading capabilities in infrastructure, private credit and private equity solutions,” Martin Small, BlackRock’s chief financial officer, said at the time.
BlackRock’s news coincided with findings by Morningstar that pointed to geopolitical uncertainty driving increased interest in private markets – especially among Australian super funds, which are heavily invested in areas like infrastructure, private credit and private equity.
“Larger funds are evolving their strategies within private markets, taking a more active approach by applying fee pressure, engaging more in direct co-investments, and focusing on parallel funds rather than broad mandates,” Morningstar said.
But while both investors and asset managers have been homing in on private markets, so has Australia’s corporate regulator. Namely, ASIC has been actively consulting with the industry on whether and to what extent additional regulatory oversight of private markets is needed.
Earlier this month, the regulator held a symposium as an extension of its focus on capital markets where attendees, including the CEO of the Future Fund and a non-executive director at UniSuper, agreed that while public markets remain a preference for cost, transparency and flexibility, private markets are key for broader market dynamics.
Dr Raphael Arndt said: “If we could get the same asset in public or private markets, we would pick public every day of the week.”
He pushed back on the idea that regulation is driving capital into private markets, instead pointing to the longer time horizons required by growth companies.
“I think it’s really about the time horizon of the end investors in both markets. And the public markets aren’t particularly good places to fund a growth company that has to reinvest in its own business or acquire businesses to turn around or fix something that’s broken and be patient. The irony, I think, is – that’s how you create a lot of value as an investor, and that’s why we would expect higher returns in private markets,” he said.
Similar arguments have been made by super funds in recent months, with Australian Retirement Trust telling ASIC private markets offer diversification benefits, lower volatility, greater portfolio control and access to a broader investment universe.
The fund, which has been investing in private markets since the mid-1990s, said: “By providing an alternative return source with differentiated risk/return characteristics, unlisted assets increase diversification and reduce overall portfolio risk as the assets can be relatively uncorrelated to business cycles.”
“By responding differently to fluctuating market conditions, this diversification through market cycles can result in enhanced return stability and portfolio quality,” it added.
ART also highlighted its ability to influence governance and portfolio construction through private investments, noting that such control enables the fund to pursue high-conviction sectors aligned with member outcomes.
