From 2020 to 2022, private equity went through its own renaissance period—but in late 2022, this activity significantly slowed due to geopolitical turmoil, rising interest rates, and inflation-driven disruption and uncertainty in global markets. The U.S. and European markets were hardest hit by the end of 2022, but Asian/Pacific and African markets also experienced disruption.
During times like these, it can often seem like there are no “safe” investments. Even those assumed to be safe, like certificates of deposit or online savings accounts, offer such a small amount of interest it hardly seems worth tying up these funds.
For discouraged and new investors, what private equity opportunities are available in 2023 and beyond? Below, Zachary Fond of Alta Semper Capital explains just a few of the opportunities available to dedicated investors.
Private Equity Opportunities in the U.S.
The U.S. private equity market currently holds $1.1 trillion in dry powder (or committed but undeployed capital), so experts expect a significant amount of money to flow toward minority investments, private placement of debt, and all-equity deals over the next few years.
As inflation begins to wane and asset valuations decrease, the private equity environment seems poised to attract more retail investors than ever before. “And with the U.S. markets entering their third flat (or negative) year in a row,” Fond explains, “emerging markets are becoming even more attractive as a way to mitigate risk.”
For private equity investors, there will also be a renewed focus on diversifying from traditional private equity to investments in other asset classes—credit, infrastructure, real estate, minority deals, and impact investing. These investments will be available for both U.S.-based companies and assets and those held across the globe.
Private Equity Opportunities in Emerging Markets
Many experts predict a U.S. and European recession in 2023—but fortunately, emerging markets are far less likely to be affected, particularly those whose investments are held outside the U.S. Africa, in particular, is experiencing an unprecedented time of social, economic, and demographic changes, with evolving consumption patterns and an increase in demand across the board. This boost in African investments may have a ripple effect on other emerging markets.
The private equity capital pool, or the amount that investors have committed to funds but have not yet invested, is currently more than $1.20 trillion worldwide. This is enough “dry powder” to last for three years or longer, even if no additional fundraising occurs. “But this is unlikely,” Fond indicates, and the amount of dry powder isn’t expected to decrease anytime soon significantly.
During 2023, emerging markets may present an especially attractive private equity investment for three main reasons:
- China’s pro-growth, stimulus-oriented priorities that have helped meet demand
- A weakening U.S. dollar in comparison with other currencies
- Changes in global trade relationships after the COVID pandemic, which revealed a clear need to diversify supply chains and improve logistical management
As the value of the dollar has peaked and begun to drop, emerging markets may be able to benefit as their own currency becomes stronger. And countries in Latin America and Africa could begin to see increases in their commodity prices as inflation and demand continue to rise.
Moreover, the complexities of the U.S.–China relationship can help supply chains expand and evolve. Instead of depending on a strong China-to-U.S. pipeline, consumers may begin exploring emerging markets and building these relationships—including solid relationships between the U.S. and India, the U.S., and Latin America, and the U.S. and non-Chinese countries in Southeast Asia. China is also expected to increase economic integration and expand its Belt and Road infrastructure programs, helping make it an attractive investment.
“If you’re an investor who is heavily into emerging markets,” says Fond, “it’s worth considering whether you’d like to reduce your exposure to Chinese investments in favor of those from smaller but more thriving markets.”
About the Author:
Zachary Fond joined Alta Semper Capital, LLP in 2016 and brought to his career over 10 years of experience in the private equity investing and financial advisory sectors. Before joining the private equity management firm, he was the senior associate at Emerging Capital Partners. There, he covered consumer, retail, and logistics investments in Kenya. He began his career in the investment banking divisions of UBS and Goldman Sachs, in Johannesburg and New York. He received his BA in economics from Cornell University and an MBA from the University of Pennsylvania’s Wharton School. We’re happy to have Fond on our team.
At Alta Semper, we take a sector-based approach to private equity. We don’t believe Africa is an asset class, but a series of sovereign countries with their own history and competitive advantages. Our investments are focused on consumer and healthcare sectors in stable, well-diversified countries, and provide a solid return to investors while allowing them to do good.
If you’re interested in more information on these investments, visit our website today.