Economies worldwide are currently recovering from the recession caused by the COVID-19 pandemic, and investment trends are adapting accordingly. Despite the unstable economic performance, the private equity market demonstrates relative resilience and inspires confidence amid the overall investment landscape. Private equities have a significant advantage over the public investment sector as they are considered more resilient during periods of economic volatility.
Private equity presence in developing markets will expand dramatically in scale and quality. This trend is only gaining momentum as the private equity market has proven to be more resilient during an economic recession than the public equity market.
In addition, PE investors expect steady growth in investment rates, a spectrum of trends, and rising opportunities for PE investing. So what are the main investment trends and opportunities to expect in 2022?
1. Stable PE Market Growth
Funding for many evolving markets can be provided through private equity capital. This method is attractive to SMEs where debt financing and capital markets have not yet gained a more substantial presence in the capital markets. Investing in private equity capital can be a crucial link in the transition and maintenance of a sustainable economy.
By increasing the market capitalisation of enterprises, private equity firms can also stimulate enterprise growth, employment and productivity. Therefore, private equity can serve as an investment tool to diversify investors’ portfolios and as an attractive source of capital for economic growth and transition.
Factual data shows that private equity is associated with significant operational improvements and improved profitability of invested companies. According to official statistics and economic figures, the value of fundraising venture capital funds in the US increased to $74.5 billion in 2020.
2. Dynamic Investment Trends in Technology
Private equity firms are targeting startup companies engaged in technology and digital solutions. They are showing strong growth and staying afloat due to the growing demand associated with the digitalisation and technologisation of all processes.
When assessing risk, it is essential to understand that the value of software companies is skyrocketing and remains stable even during economic downturns. Compared to investments in the consumer sector, which can be subject to significant downturns during crises, technology investments are less susceptible to global changes. As a result, these services can successfully compete in domestic and foreign markets, provide advantages over competitors, and generate investment returns for private investors.
Conversely, the increase in high-tech investments is the key to the qualitative growth of the economy and the primary economic model of the developed countries of the world. Moreover, the government’s share in funding high-tech innovations is not fundamental since most funds are replenished by venture capital, i.e., private investors’ money.
Any innovative enterprise requires significant investments in research and development. At the same time, the financial support from the government in the present-day context is minimal. Therefore, the perspective of modern science is associated with the private equity market.
Statistical reports show that investment interest in digital startups in Africa is gaining momentum, with equity financing raising $350 million in the first quarter of 2020. According to Google and the International Finance Corporation’s analysis, Africa’s digital economy is expected to reach $180 billion by 2025, and e-based economic activity is expected to account for 5.2 percent of GDP.
3. The PE Market Trend to Invest in HealthTech
The dramatic changes in healthcare are creating unprecedented opportunities for private equity companies in the healthcare industry. Competition for high-potential investments intensifies as the number of venture capitalists, PE funds, and investment firms grows. We take a look at some of the factors impacting these investment trends:
The global COVID-19 pandemic has prompted the developers of high-tech software to look for alternative ways to provide medical services. Moreover, with the development of telemedicine and digital therapeutics, with a global market cap predicted to reach $636.38 billion by 2028, the demand for medical software development and implementation grew.
Besides, it is assumed that telemedicine will gradually move to the proactive stage: systems will warn patients about the possibility of developing certain diseases.
The pandemic has spurred the medical sector as a whole, but not just the search for practical tools against COVID-19. The need for clinics, laboratories, large and small healthcare providers to embrace the new reality and innovate alternative solutions to patient care has led to an increased demand for investment in health care monitoring systems. Video chats and video calling programmes will improve, becoming even more intuitive and reliable.
The market for clinic solutions will grow. In 2020, venture funding for health tech innovators reached a record of $14 billion. According to a report by Verified Market Research, the Global Consumer Healthcare market size had a value of $3,32,391.42 million in 2020 and is projected to reach $6,65,372.71 million by 2028. In particular, the South African healthcare market is expected to grow at a CAGR of 4.7%, reaching a value of $37 billion by 2022.
Since all these factors lead to developing technologies for monitoring and maintaining healthy lifestyles and artificial intelligence in diagnosis, investment in the healthcare sector will continue to increase, demanding more investments and opening broad opportunities for PE funds.
4. Shift to ESG Practice in the PE Market
ESG (environmental, social and governance) strategy is gaining momentum in the private equity market, as these criteria are becoming increasingly essential and are rightfully considered high-level performance standards of any company.
Based on traditional investment approaches, sustainable investing (or socially responsible investing, green investing, ethical investing, and socially transformative investing) incorporates environmental, social, governance, and other sustainability fundamentals into the process of making investment decisions to preserve and enhance value for the private equity investor.
- Environmental criteria can include company waste, energy use, pollution, animal care, and natural resource conservation. These criteria may also assess any ecological risks that companies in which private equity funds invest in may face.
- Social criteria define a company’s business attitude. Socially aware private equity firms rely on these standards to evaluate potential contributions to companies that keep an eye on cooperation with suppliers, employees, customers, and communities with which they have strong social and financial relations.
- Governance principles: Although the private equity market in South Africa is already controlled by the Financial Advisory and Intermediary Services Act (FAIS Act) and the Financial Sector Conduct Authority (FSCA) under the Financial Sector Regulation Act, investors support the ideas of the transparency and accuracy of accounting systems and the company’s policy of avoiding conflicts of interest among board members and avoiding political connections for development and illegal activities.
This holistic approach to investing is designed to achieve competitive, risk-adjusted returns. It also allows PE investors to build financial portfolios based on their values, positively impact society through investments, and support companies that integrate environmental, social, and governance considerations into their business strategy and financial reporting.
Sustainable investing will become mainstream, providing PE investors with broad opportunities.
Choose IFSA to Keep Track of Investment Trends and Get the Most Out of the PE Market
It is crucial to keep track of the current and upcoming trends in the private equity niche. At IFSA, we are ready to help you research the market and select high-potential ventures for smart investing, actively invest your financial resources to increase profits and diversify your investment portfolio, as well as monitor all current trends in the private equity market.
We strive to give our clients the investment opportunities to profit through operational management of the PE market, increasing efficiency and thus creating economically profitable and reliable investment resources.
To get expert assistance in private equity investments and to book a free session with our team, please feel free to get in touch.
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