Private capital markets due for a correction, says Pictet’s CIO

The booming private capital market might be in for a correction, says Cesar Perez Ruiz, chief investment officer of Pictet Wealth Management, which could hurt the portfolios of many family offices.

“Private equity groups are selling more businesses than they are buying,” says Perez Ruiz. “And I think more companies are likely to list in the coming years.” Perez Ruiz was speaking at a private gathering of journalists in London organised by the Geneva-based bank.

If the private capital cycle turns, private equity houses and even family offices might be in for a rude shock. As Family Capital reported last month, a bubble has emerged in the private capital market and those involved in it. There are now more than 7,000 private equity firms, with their numbers grew by a staggering 872 in 2016, according to Preqin, the alternative asset data group. 

The boom is hardly surprising given the stellar returns in private equity over the last few years. Over the five years to the end of 2016 private equity funds have generated a median net annualized return of 11.4%, that compares to 5.2% for hedge funds, and 9.1% for listed equity, says Preqin. Those returns have led to many family offices buying into private equity either directly or indirectly.  

But if there is a pick up in the IPO market in the coming years, as predicted by Perez Ruiz, those returns could fall, as assets get diverted back into public markets and away from private ones.

Perez Ruiz, who was upbeat about the prospects for public markets, earnings and the global economy, also reckoned that active fund management is staging a comeback as a result of many active managers outperforming benchmarks so far this year. “Even hedge funds are having a good year,” he says.