The Story of Private Markets

The Story of Private Markets details our view of the history and future trajectory of our industry. Private equity – now more capaciously termed “private markets” – is one of the most incredible growth stories of the last few decades, with AUM growing more than 11x since 2001. ^[1] We have been careful students of this market for much of this story, and many of us have invested through its major inflection points. This represents the synthesis of our learnings: why we have never been more excited to invest behind creative, alpha-oriented, and growth-minded managers looking to build superior investing franchises, and our view of the capabilities we think managers will need to win.

Since its inception, the private equity industry ^[2],^[3] has accumulated assets under management (AUM) of $12 trillion. Private equity – now “private markets” – firms are active in nearly every major economic sector and conduct a variety of financial services for businesses, institutional investors, and individuals. Private markets funds both own and operate banks and compete with banks in corporate loan markets; private markets firms own insurers and wealth managers, and a few of them are insurers and wealth managers. The fifteen largest publicly traded PE firms manage $4 trillion in private, liquid, co-investment, and insurance capital and have collectively created $425 billion of management company value.^[4] Despite shouldering a growing capital deployment burden, and growing expectations of return erosion, the industry has maintained its outperformance (Fig. 1). But the industry is now entering middle age, and the market is changing in material ways. We expect this period to last for decades and disrupt much of the status quo, with significant opportunities (and threats) for market leaders and challenger firms alike.

We think this setup presents substantial opportunity for investors in the private markets ecosystem. We believe the industry is experiencing major growth tailwinds, is heavily fragmented, faces new capital demands, and is underserved by existing solutions. This is typically a strong green-light for interesting deployment opportunities. We think there is a compelling market opening for an innovative, aligned, and independent GP capital solutions provider of scale. This paper reviews why.

At its core, private equity is a solution to principal-agent problems in corporate governance. The solution requires the manager to commit a meaningful amount of personal capital to the assets (s)he manages in exchange for a levered, junior claim on the assets’ performance. Investors receive the senior claim with a preferred return. That model has been in place for traditional private equity managers since its beginnings, tracing its roots to a negotiation between the founders of KKR and their original backer (First Chicago) in 1976, and it has become the way that most companies, public and private, compensate their key executives.

Private equity partnerships were originally formed in the 1940s to raise venture (or “development”) capital and flourished again in the late 1970s after the first leveraged buyouts of founder-owned companies. Each new strategy represented a novel financial market that previously lacked liquidity or dedicated financial participants. For example, before venture capital, R&D costs were borne solely by the internal cash flow of large corporations; venture capital became, in effect, the financial market for R&D. Before leveraged buyouts, small-to-medium-sized private businesses did not enjoy a robust market for corporate control and could only exit by selling to their larger competitors.

Each private markets strategy has been developed in this same way: by (a) finding a nascent, illiquid, or non-existent financial market; and (b) forming capital to act as a dedicated financial buyer in that market (c) under a compensation and incentive structure that aligns the manager (the general partner, or GP) with their investors (limited partners, or LPs). It is this framework for how the industry evolves that guided our firm’s launch in 2019 to be the first mover in the institutional market for interests in major professional sports franchises.^[5]

The original ventures in the private equity business – ARDC, SBICs in the late 1950s, Venrock, Warburg Pincus, Sequoia, KKR, etc. – were directed at equity in private, small- and micro-cap firms whose shares enjoyed little-to-no price discovery. Nowadays, the aperture has widened. For example, private credit funds, BDCs, and CLOs are expanding the primary loan market previously dominated by banks. (A private credit fund is essentially a bank lending department with its own balance sheet and set up with the classic private equity compensation structure.) There is in principle no limit to how pervasive the industry can be: “private” capital covers everything but the largest, most liquid companies, though even there, a robust take-private market exists.

From its inception to 2000, traditional private markets fund AUM grew to $660 billion, and since then, despite the tech wreck, the financial crisis, the European debt crisis, and a pandemic, it has grown by 12x to $8 trillion. In addition to traditional funds, there’s been a surge in capital raised via non-traditional vehicles, which we estimate totals ~$4 trillion, captured mainly by the largest GPs (Fig. 2).

Despite this growth, the growing influence of private markets belies its actual footprint. Total assets managed by private markets GPs ($12 trillion) represents only 4% of global investable assets ($287 trillion).^[6] Incentive alignment and innovation (and competition to foster it) are a part of the equation explaining private markets’ resilience to return erosion (Fig. 1). But in our view, simple under-penetration is the main reason the asset class has resisted return erosion. Other examples to illustrate what we mean (Fig. 3):

While it remains relatively small overall, private markets exposure differs greatly across major, global investor types (Fig. 4). We estimate that, of the approximately $122 trillion in global institutional and family office (UHNWI) wealth, about $11.4 trillion is allocated to private markets – ~95% of total AUM. The remaining ~5% of private markets AUM – about $0.9 trillion – comes from the “retail long tail” and is mostly managed via retail products like non-traded and traded REITs, BDCs, and ‘40 Act closed-end funds. We estimate that about 80% of that amount is controlled by the largest public GPs, with just two firms (Blackstone and Brookfield) controlling >50% of it.

There are also institutional investors who were historically underpenetrated due to poor product-market fit: insurers and corporate pensions. Insurers are risk-conscious spread investors who have historically limited private equity allocations to 1-3%; the average corporate pension is 93% funded and 49% of corporate pensions have a fixed income allocation above 50%.^[8] However, private markets now generate product across the entire risk and liquidity curve – senior secured loans to asset-backed finance and opportunistic private credit – and are sourcing private credit capital directly from wholly or partially owned insurance affiliates.

So we believe there is significant white space in the industry up for grabs. The industry manages a modest 4% of global wealth and there are new opportunities opening with both new institutions and retail investors. But as is already apparent in the above, there are new challenges for ambitious GPs outside of the upper tier trying to capture this next leg of growth.

Yet, we believe each of these challenges also represents a major strategic opportunity for GPs, if aligned with the right capital and thought partner:

1) The End of Easy Fragmentation: Since 2021, there’s been a major shift towards large, multi-product GPs, and market share trends favor these firms. New firm formation is likely to get harder.

2) The End of Easy Money: The multi-decade “beta” tailwind that lifted all boats appears to be over. Determining and marketing alpha will be critical – both for GPs managing internal resources and for LPs selecting managers.

3) The Erosion of “20 over 8”: The next leg of growth for the industry will likely require moving to balance sheet-heavy models and hiring / acquiring for new sorts of expertise. The industry is slowly beginning to shift from renting capital to owning it, and the transformation from cottage industry to financial services supermarkets will have ramifications for everybody.

Private markets have been largely a business where revenue sticks to people and not to brands. We say that private markets have been more like jazz than rock and roll: People follow musicians, not bands. (In jazz, like in early private equity, the bands tended to be named after the lead musician!)

In most professional services industries – say, accounting – provision of services requires little long-term capital investments or working capital, and customers attribute service quality directly to the principals of the firm – so “hanging out a shingle” is not capital intensive and entry/exit from the industry is relatively easy. Now, that is not entirely translatable to private markets, due to GP commitments – but it is still straightforward for most credible new GPs with some personal capital to start-up. The industry remains young, entrepreneurial and risk-seeking: of the top 100 non-public GPs, sixty remain founder led.

Most professional services industries – e.g., investment banks, consulting firms, accounting firms – have reached maturity and passed their “easy fragmentation” phrase: nowadays, the breadth and quality of E&Y’s or Goldman Sachs’ corporate relationships makes leaving to start a competitor prohibitively risky. Their scale raises barriers to entry.

We believe private markets are only just now entering this phase, after years of stubborn resistance to expected consolidation pressure (Fig. 5). The number of active GPs ^[9] in North America and Western Europe was 4,192 at the end of 2021. This is up from 1,356 two decades ago, or 3.1x, driven by 5,523 cumulative new firm launches and 2,687 cumulative GP closures or “zombies” over two decades. ^[10] In 2022, for the first time ever in our sample, the number of active GPs declined, driven by unprecedented slowdown in new GP formation and fundraising struggles for returning GPs. Prior to 2022, new GP formation remained healthy , with the number of freshman GPs growing from 191 in 2001 to 361 in 2021. New entrants have apparently not been deterred by the roughly 30% long-term average failure rate for first time GPs. (We were not.)

Besides a strong culture of entrepreneurship, what drove this persistent fragmentation? A major driver has been the industry’s customers. Post-GFC, LPs have demanded sector-specificity and more control over their industry, sector and even transaction allocations. This is the same sort of product unbundling that we are seeing in other industries, like media or online retail. New GP formation is a kind of firm unbundling, and some LP desire for sector-specific funds and independent, highly aligned specialists has, in part ^[11], supported the long-standing fragmentation we see in the data.

But this is changing fast. In our sports investing practice, we often talk about the “Great Rebundling”^[12] that we believe will happen in media over the next decade. There is a similar dynamic approaching in private markets.

First, product unbundling has benefited smaller managers – but only to a point. LPs have slowly consolidated manager relationships over the last decade, and to capture both unbundling and relationship consolidation, the top GPs now support 10+ different product lines (Fig. 6). Second, as already mentioned, the largest firms have easiest access to the retail long tail and captive insurance liabilities, and many managers will never have enough to tap either of these new pools of capital. In addition, the largest LPs have been able to exchange large overall commitments to many of the largest GPs in exchange for dedicated, no- or low-fee separately managed accounts and co-investment vehicles – a form of implicit price competition and fee compression in an industry that has had remarkably inelastic pricing for decades (“2 and 20”). Third, other than price competition, there are growing fixed costs for running a mid-to-large-sized GP that support the push to increase scale to better rationalize the business. This include: demands for increased alignment and larger GP commitments; increasing reporting and compliance requirements (in part driven by the expansion into retail); increasing fundraising velocity and competition; demands for aligning firm investing and operating goals with robust ESG and DE&I frameworks; and competition for and retention of talent. Fourth, most GPs have at least one mega-cap GP entering their sector and capitalizing on their themes at scale – and sometimes winning deals based on brand or capital formation ability alone. While not impossible to manage – GPs have always needed to navigate competition and find niches where they can reliably deploy capital – it does raise the cost of staying small. The net result is higher capital intensity, higher barriers to entry, and more differentiation based on brands than individual dealmakers – more rock and roll, less jazz – and more incentive to get bigger and ensure survival.

The data suggests that, at least post-pandemic, larger firms appear to be winning disproportionately. For 2021 and our best guess for 2022, public GPs captured a whopping 42% and 51% respectively of traditional funds raised (Fig. 7) and likely captured substantially more of the shadow capital marketplace. Some of this is likely cyclical, but if this trend persists even partially, we estimate that the current suite of public GPs will see their AUM market share grow to nearly half by 2030, assuming industry growth in-line with historical patterns. Now, starting in 2022, we are likely seeing the beginnings of a slowdown in new GP formation (down 55% YoY – the largest deceleration on record) and a spike in GP failures or new “zombie” GPs (Fig. 5)– i.e., GPs continuing to manage assets but unable to return to market.

Why does fragmentation – and its slow erosion – matter? At its core, loss of fragmentation means new competitive pressure; an industry that can sustainably support a lot of small, independent merchants is one where everyone can win. That brings us to our next challenge.

The prototypical new dollar entering the private markets ecosystem over the last thirty years has come from institutions, especially public pensions, facing the challenge of secularly declining long-term interest rates amid fixed future liabilities. Economists debate the reasons for so-called “secular stagnation”, but the fundamental cause is an increasing propensity to save and a decreasing propensity to invest.^[13] This is possibly caused by changes in tax and monetary policy; increasing globalization and capital mobility; global savings imbalances; and declining capital intensity of industry. In a secularly stagnating world, interest rates eventually reach the zero lower bound, and growth stagnates.

Traditional portfolio theory assumes investors select the mix of cash and the market portfolio that provides the best return possible for the risk that they are willing to tolerate. Investors are not leveraged. In the real world, many investors – like pension funds ^[14] – are, in effect, highly leveraged: They have fixed liabilities, which means that declining rates (like in disinflationary periods) makes exact liability matching with low risk fixed income assets more expensive over time, while increasing rates (like in inflationary periods) makes exact liability matching easier. This phenomenon, exacerbated further by pension underfundedness in the U.S., has generated strong secular demand for equity risk broadly and private equity in particular, which, in addition to strong outperformance, enjoys lower mark-to-market volatility.

This migration out on the risk curve (aka, the “search for yield”) has been a major source of autopilot growth for private markets. Declining rates have generated both new sources of capital for the industry to manage and boosted GP “beta” performance, i.e., regardless of manager skill (“alpha”). Reported allocations to private markets have been behind the curve as the liquid, rate-sensitive portion of the portfolio has risen – a secular, accommodating denominator effect.^[15]

But we believe this positive impulse from secular stagnation is over. Capital mobility is declining, tariffs or threats thereof are rising, and supply chains are being reshored or rebuilt for resilience and redundancy. In addition, developed world governments are growing defense spending and activating more robust trade and industrial policy in response to China’s rise, at the same time as they face increasing populism and demands from the public for spending at home.

As a result, whether the inflation we’ve witnessed over the last eighteen months declines quickly or not, we believe that inflation is likely be more volatile over the medium-term and that permanent declines in long-term nominal interest rates are less likely.

At the same time, the industry is facing a major cyclical headwind caused by a sharp decline in risk asset prices and a resulting, punitive denominator effect. Declines in private market fundraising can be reliably tracked by following drawdowns in a simple, inflation-adjusted 60/40 total return index (Fig. 8). This index declined about 25% in 2022 – as much as it did during the last two recessions! If macro headwinds do not lessen for risk assets, historical trends would suggest that the next few years will be challenging for fundraising.

Finally, as alluded to above, beta tailwinds uniformly benefited highly levered strategies like buyouts, and two separate tech manias (1995-2000, 2017-2021) benefited venture capital (which is, in effect, a highly levered strategy of buying out-of-the-money calls). In our experience backing managers and advising LPs, we believe this backdrop has made disentangling manager luck from manager skill a difficult task for LPs, except when assessing the strongest GPs, who, as a result, have gained disproportionate market share. But with declining performance momentum from “beta”, we believe it will become more challenging to differentiate and build platforms as a GP (or assess managers as an LP) without sophisticated analytical tools and performance optimization playbooks focused on alpha – tools that we have actively built, pioneered, and utilized throughout our careers advising GPs.

The largest GPs are slowly moving from renting capital at an 8% lease rate (the typical “preferred return”) to owning permanent capital directly. Doing so is expensive – Apollo alone spent approximately $20 billion of equity capital on Athene – but dramatically changes the reach and capabilities of the business.

While insurance affiliation has been the first leg of the stool, we believe business diversification beyond traditional fee-for-service asset management and towards multiline financial services is likely inevitable. Post-Dodd Frank, basic financial intermediation is increasingly easier to conduct via “asset light” asset management business models vs. using traditional banking and insurance balance sheets. Traditional investment banks want to look more like wealth managers or alternative asset managers; innovative insurers are developing asset management capabilities and have been active sellers of legacy liabilities. Many traditional financial institutions have a growing direct origination need to justify carrying these liabilities (or simply want to diversify), while many do have existing asset or wealth management businesses of scale that are simple, fee-for-service businesses more closely coveted by public markets.

Including Athene, we estimate that the industry (across both GPs and LP co-investors) has spent approximately $80 billion in equity building insurance vehicles and sidecars that support ~$1.4 trillion in total insurance assets and ~$500 billion in commitments to private credit and private equity products. In most cases (e.g., Centerbridge/Martello Re, Blackstone/Resolution Life), these are strategic partnerships between the GP, several other origination partners, and the selling insurer, but both Apollo/Athene ($20B) and KKR/Global Atlantic ($5B) were majority transactions and are consolidated on their respective balance sheets. In fact, to pick the most obvious example, Apollo’s business model today is closer to Prudential’s than to the average GP’s. Apollo owns a $200 billion captive insurer, 60% of whose general account is managed by Apollo – a $520B asset manager – via both asset management products (commingled with outside LPs) and alternative credit and asset-based finance originated directly for Athene’s balance sheet. Prudential owns a $700 billion captive insurer, 70% of whose general account is managed by PGIM (a $1.5T asset manager) in commingled asset management products and direct origination. Prudential’s business is identical to Apollo’s with three key differences: (i) Prudential is 3x the size; (ii) Apollo is 100% focused on alternatives; and (iii) Prudential’s capital base is substantially more exposed to retail investors (Fig. 9).

While we’ve focused on insurance here, the race to capture the retail long tail will also require both capital and new sorts of expertise. These include developing (i) retail-appropriate products and (ii) new relationships, whether hired or through acquisitions. The breadth of team required to support these relationships is large and costly: specific distribution teams covering wirehouses, RIAs, and independent brokers; product and content specialists; and investment strategy and advisory services. Finally, owning insurance businesses often gives you retail access, given the synergies in terms of sales channel: many insurers have in-house retail distribution capabilities for their insurance products.

We believe this marrying of traditional financial services liabilities with alternative assets will continue to permeate the asset class and represents the critical underlying theme impacting both GPs and traditional asset managers, banks, and insurers. We believe expanding into multiline financial services is a natural evolution that provides meaningful opportunity for those GPs with the right solution and business model. There is a risk that, absent that, many GPs could be left behind in market prone to further consolidation.

The GP capital solutions market encompasses ~$410 billion in TAM between GP stakes, or management company solutions, and GP-centric secondaries, or fund- and asset-level liquidity solutions – to tackle what we view to be five common execution themes for GPs (Fig. 10):

In other mature markets for growth capital that cover a particular vertical (e.g., software), there is a robust ecosystem of independent private investors with dedicated functional capabilities and holistic strategies for adding value (whether that be through improved sales efficiency, customer success, hiring and retention, etc.). These firms compete for investment opportunities on both price as well as brand, relationships, and resources. The ecosystem is value-driven, not transactions-driven: e.g., while there are shops that just do secondary solutions for early founders of VC-backed start-ups, the major software GPs can do this too, and will do so as part of a holistic value creation strategy for the business.

But this is not how the GP growth capital market works. The GP capital market is split into highly siloed, intermediated transaction universes where price competition is the main differentiator. As a result, we believe that GPs are “on their own” in these markets, there is little incentive for innovation, and the potential for conflicts is high – both between solutions providers and their investee GPs and between GPs and their LPs.

For example, there is a highly efficient continuation fund market – where upwards of 80% of deal flow by dollar is intermediated by the major secondary advisors^[16] – and where any GP a year ago could get a reasonably competitive bid on any asset or sub-portfolio in their book.^[17] Most of the major secondary funds, as well as dedicated GP-led specialists, frequent these markets, which amount to de facto “exchanges”, and source a meaningful percentage of their deal flow through these channels. Similarly, the GP stakes market is a mature, highly intermediated market constituting of a handful of well understood transaction archetypes, predominantly used to provide liquidity to managing partners and their balance sheets. There are preferred equity or NAV lending markets that provide one-off liquidity solutions to funds. Finally, there is the secondary market writ large, which can be tapped for LP liquidity at every imaginable scale or to source commitments to upcoming funds or products (stapled secondaries) – again, efficient, well-intermediated and defined by a handful of known, repeatable transaction archetypes. Over the course of our careers, we have helped create or were first-movers in many of these markets.

Now, there is nothing inherently wrong with this setup. It has one big advantage, which is maximal price efficiency. Its existence is an asset to the ecosystem, just as public stock market exchanges or OTC market makers are beneficial tools for public investors. But, like for public market investors, we believe the infrastructure that facilitates pricing alone is incentivized to generate more transactions and more scale, not to maximize long-term value for market participants.

Highly efficient markets incentivize an ecosystem to produce repeatably transactable contracts. In public markets, there are forwards and futures on every imaginable instrument, swaps on every currency pair or pair of rate-bearing instruments, etc. – innovation, when it does happen, is copied and commoditized quickly. Once repeatable transaction paradigms are established, dedicated providers of scale enter them and are incentivized to defend their new franchises and, relatedly, support trades that can be broadly syndicated. This can naturally hamper innovation and biases the ecosystem towards transactions-at-all-costs: few intermediaries or dedicated secondary buyers are incentivized to advise a GP not to pursue a standard, easily syndicated GP-centric transaction, even if an alternative is in that GP’s best interest.

This lack of alignment and innovation is now compounded by a lack of independence among buyers in the ecosystem. Over the last three years, several dedicated, independent secondary buyers have been acquired by larger asset managers, many of which are public and have ambitious retail AUM targets for their new secondaries product. To be clear, we are in favor of firms thinking carefully about how to generate interesting retail product, and responsibly growing AUM is more critical than ever for those GPs with a right-to-win and a clear mandate from LPs. Traditional secondary funds are diversified private equity “index” products with a historically strong liquidity – a good fit for retail. But the result is that, more than ever, most secondaries firms are focused on originating as much deal flow as possible, and the easiest way to do so is through the “exchange”-like marketplaces.

As a result, we believe differentiation amongst secondary funds will continue to decline. Secondary deals of scale are now more likely than not highly syndicated, meaning dedicated buyers are effectively stock-picking amongst the same set of on-the-run opportunities.

Finally, we believe this industrial organization can produce misalignment. Continuation trades can cause misalignment with LPs. Often, LPs have not had adequate time or resources or information to make an informed roll/exit decision, and so 90%+ take liquidity.^[18] GPs earn both a fee step-up on the new cost basis of the fund and can crystalize their carry in the existing deal by rolling it into equity in the new vehicle. We believe pursuing continuation trades under this structure amounts to “trading in” goodwill with your LPs for immediate economics – indeed, anecdotally, we are aware of LPs who are beginning to push back. As a result, pursuing this kind of trade could conflict with a broader, long-term strategy focused on, say, bringing in new anchor institutions of scale for a second product.

Similarly, permanent GP stakes or control sales that crystalize permanent fee-related earnings (FRE) streams for outside investors are, in effect, taking economics out of the GP ecosystem at the expense of future employees. As a talent-focused business, this is likely not value enhancing long-term. In fact, we think there is a major opportunity over the next decade or longer in helping those GPs that have sold a stake – roughly 30% of scaled, non-public GPs, according to Bain estimates – to replace their existing GP stakes partner with more flexible, collaborative capital.

We believe a GP capital solutions strategy can address these issues, but only as a fully aligned and independent growth investor focused on holistic solutions, like in other growth capital markets. Generating LP liquidity via continuation vehicles can be highly aligned and platform-enhancing: provide new roll-up or platform capital for an existing portfolio company that is having temporary balance sheet issues, or recapitalizing tail-end funds where liquidity for individual deals is otherwise thin. Alongside other franchise-promoting strategies (e.g., higher GP commit, product revamp or expansion, new partner hires), fund management liquidity solutions can be a valuable tool. Flexible GP capital that brings the firm together around a shared solution for both retiring partners and up-and-comers is critical. And most importantly, capturing the next leg of growth and dealing with the three big challenges in an increasingly complex and maturing ecosystem will require innovation, fresh thinking, and fully aligned long-term partners.

We are Arctos Partners. Our passion is catalyzing innovation and transformation in the markets we serve. This was front-and-center when we launched our Sports practice as the first dedicated institutional investor in that market. Now, we are excited to launch our second strategy, which we call Keystone. A “Keystone species” is not necessarily the most dominant in an ecosystem. Instead, the Keystone species is that without which an ecosystem would be drastically worse off, or a species on which others largely depend. Arctos Keystone aims to fill what we see as a critical vacancy in the private markets ecosystem as a fully aligned and holistic growth and liquidity partner of scale, focused on deploying both the capital and capabilities needed to win in a rapidly changing industry. Keystone will seek to bring both capital and innovation to strategic partnerships backing the most creative private investing franchises in the world, and we have built a unique set of capabilities that we believe make us the partner of choice for ambitious GPs.

[1] See Fig. 2 below.

[2] We will use “private equity” and “private markets” interchangeably.

[3] We are focused on the industry as it exists in Developed Markets (North America & Europe). We also exclude commitments to Funds of Funds and Secondaries funds, which would (mostly) double count AUM, but include our estimate of “shadow capital”: co-investments, directs, perpetual capital (retail, insurance, etc.), CLOs, and separately managed accounts. See Fig. 2.

[4] Source: Barclays, S&P. As of November 2022. Includes fee-paying and non-fee-paying AUM, liquid strategies, hedge funds, and separately managed accounts as reported. Management company value is public company TEV. Includes: BX, BAM, APO, KKR, CG, ARES, TPG, OWL, EQT, PAT, BRDG, BPT, TKO, RF, and ANTIN.

[5] Arctos was the first institutional investor approved to make multiple investments in a single North American league (MLB, April 2020).

[6] Source: Bain estimates (As of June 30, 2022), PricewaterhouseCoopers “Asset & Wealth Management Revolution: Embracing Exponential Change” (2020), Preqin (As of March 31, 2022).

[7] Estimated using two methodologies: (1) 23x P/E multiple on annualized U.S. corporate profits (current S&P 500 multiple) and (2) dividend discount model valuation using 60% assumed payout ratio (dividends & buybacks) and 2.0% dividend yield. Source: U.S. BEA, MSCI, Arctos analysis. As of December 2022.

[8] Source: Vanguard Pension Advisory Solutions: Corporate Pension Trends 2022.

[9] “Active” is defined as an GP whose latest fund is at most five years old

[10] Firms that failed to raise a follow-on fund but may still be managing residual capital.

[11] This same trend has stated to undo a lot of fragmentation over the last few years – more on this in what follows.

[12] Arctos Insights, “The Future of Sports Media”.

[13] Summers, L. 2014. “U.S. Economic Prospects: Secular Stagnation, Hysteresis, and the Zero Lower Bound.” Business Economics. 49(2).

[14] This also applies to insurers, but capital ratio regulations, among other reasons, have kept private equity allocations to modest levels historically – though this is changing.

[15] There were a few temporary exceptions to this rule – e.g., 2002-2004, 2009-2012.

[16] Source: Elevate 2022 Secondaries Summit – Survey (April 6-7, 2022), Question 48.

[17] Roughly 47% of GP-led transactions priced at or above NAV in H1 ’22. Source: Lazard Private Capital Advisory, Sponsor-Led Market Report, H1 ’22.

[18] Source: Lazard Private Capital Advisory, Sponsor-Led Market Report, H1 ’22.

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