How is the private equity industry evolving in response to changing market conditions?

1 Sector diversification

One of the most noticeable trends in the private equity industry is the increasing diversification of the sectors and geographies that private equity firms target for investments. According to a report by Bain & Company, private equity deal value in 2020 reached a record high of $592 billion, driven by a surge of activity in sectors such as technology, healthcare, and consumer goods, which benefited from the pandemic-induced shifts in consumer behavior, digitalization, and innovation. Private equity firms are also expanding their presence in emerging markets, especially in Asia, where growth prospects and valuations are attractive. By diversifying their portfolios, private equity firms can reduce their exposure to cyclical and volatile sectors, tap into new sources of value creation, and leverage their expertise and networks across different industries and regions.

2 ESG integration

Another significant trend in the private equity industry is the growing integration of environmental, social, and governance (ESG) factors into their investment decisions, operations, and reporting. Private equity firms are increasingly recognizing that ESG issues are not only relevant for their reputation and stakeholder relations, but also for their risk management and value creation. According to a survey by PwC, 81% of private equity firms have an ESG policy or framework in place, and 67% have a dedicated ESG team or function. Private equity firms are also adopting more rigorous ESG due diligence, monitoring, and disclosure practices, as well as aligning their incentives and objectives with ESG outcomes. By integrating ESG into their core activities, private equity firms can enhance their competitive advantage, attract more capital, and generate positive social and environmental impacts.

4 Stakeholder collaboration

A fourth major trend in the private equity industry is the increased collaboration and engagement with various stakeholders, such as regulators, investors, employees, customers, suppliers, and communities. The private equity industry is facing more scrutiny and regulation from governments and authorities, especially in areas such as taxation, transparency, and sustainability. Private equity firms are also facing more demands and expectations from their investors, who are seeking more information, alignment, and involvement in their investments. Furthermore, private equity firms are realizing the value of building and maintaining strong relationships with their portfolio companies' employees, customers, suppliers, and communities, who are essential for their success and reputation. By collaborating and engaging with their stakeholders, private equity firms can enhance their trust, legitimacy, and influence in the market.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?