Private Equity’s Baby Boom Challenge

Pension fund market share of global annual private equity commitments has dropped by a fifth since 2011, when the first American baby boomers began retiring. Standing at 31 percent, that market share will drop further as pension funds seek to maximize cash flow to meet mounting liabilities owed to baby boomers. The baby boom generation should finish retiring by 2030 in the U.S., when the population of those 65 and older will amount to some 21 percent of the total population, though in many European countries boomer retirement won’t peter out for another decade beyond that.

Private Equity’s Baby Boom Challenge

Source: U.S. Census Bureau

Plenty of Capital, but Sources are More Dispersed

There is no shortage of investors looking to invest in private equity. When the final numbers come in, fundraising in 2016 should set a post-financial crisis high, according to a range of industry sources. Yet as the ability of pension schemes to invest in classic private equity funds that tie up capital for 10 years or more has declined, due to baby boomer liquidity pressure, PE managers have been obliged to become more nimble, seeking capital from a wider range of investor types, in broader geographic areas. Indeed, as pension funds have seen their portion of annual fundraising fall in the last six years, the market share of most other groups, including foundations, endowments, family offices and sovereign wealth funds, has risen.

Identifying the Right Investors is More Difficult

As the importance of pension fund money goes into relative eclipse, the fastest growing sources of new private equity capital are often harder to find, or are in unfamiliar geographies. When it comes to high net worth individuals (HNWIs), Asia became the largest market in the world by number and value of assets over the past two years, dethroning North America. Since 2011, family offices which represent HNWIs, have seen their share of annual PE fundraising increase by 49 percent to one tenth of the annual total, representing the largest leap of any group over that period. Yet trying to locate family offices can be a lot harder than tracking down either public or private pension funds.

Finding Better Ways to Link Investors with PE Managers

As pension funds become a less essential source of capital, building bridges between private equity managers and new sources of capital becomes increasingly crucial. Palico’s marketplace helps both private equity managers and investors – wherever they might be – find new investment opportunities.