Morningstar - Q2 2022 - 32

Starting values set at 100.
Spotlight: Public/Private Markets
251.6
177.8
02/2017
EXHIBIT 3
Morningstar PitchBook Developed Markets Listed Private Equity Index
Morningstar Developed Markets Index
02/2018
02/2019
02/2020
02/2021
02/2022
400
Big Blow The global financial crisis hit private-market investing hard.
300
Combined Private Equity and Venture Capital Deal Value and Activity, 2006 to 2011.
Deal Count
Starting values set at 100.
8,000
02/2017
6,000
02/2018
GLOBAL
FINANCIAL CRISIS
100
02/2019
02/2020
02/2021
02/2022
300
4,000
Deal Count
8,000
2,000
6,000
Q1
2006
Source: PitchBook.
4,000
Dry Powder
EXHIBIT 4
2,000
Q1
2006
Dry Powder
Q3
Q1
2007
Q3
Remaining Value
$12T
3
9
2005
2007
2009
2011
2013
2015
2017
2019
2021*
6
Q1
2008
Q3
Q1
2009
Q3
Q1
2010
Q3
Q1
2011
Q3
Total Global Assets Under Management in Private Equity, Venture Capital, and Other Private-Market
Vehicles by Year.
6
Remaining Value
Q3
Q1
2007
Q3
Q1
2008
Q3
Q1
2009
Q3
Q1
2010
Q3
Q1
2011
200
186.3
$12T
Enduring Shift Assets in private-market vehicles have increased eightfold since
2005-$3 trillion of which hasn't yet been deployed. This " dry powder " could prop
up valuations for years.
100
9
Q3
Regulation could alter the public-versus-private
calculus. But more transparency in private markets
could attract more investors. What's clear is that
the mountain of capital sitting in private-marketfocused
funds means there's simply less need for
companies to list on exchanges in order to raise
funds or create " liquidity events " for their investors.
The fact is that these days, " capital formation "
occurs in both public and private markets. In the
words of a 2018 CFA Institute study:
" There are benefits to both public and private capital
markets, and so the ability to allocate to both
is important ... Having increasingly large sections
of capital markets being out-of-bounds for
pension savers is unlikely to be politically viable or
even desirable in the long term ... It is not
credible to allow an entire generation of retail
investors to be left with only diversified public
market exposure to generate retirement
returns, while institutional investors crowd into
innovative business models that offer potentially
higher returns. "
3
2005
2007
*As of 06/30/2021.
Source: PitchBook.
2009
2011
2013
2015
2017
2019
2021*
How different are public and private markets
in composition? Consider PitchBook's so-called
verticals, or company classifications, compared
with Morningstar's public equity sectors. It's
hard not to get excited about the innovation focus
of private markets ( EXHIBIT 5 ).
32
Morningstar Q2 2022
GLOBAL
FINANCIAL CRISIS
200
186.3
Deal Value
$400B
100
300
Power Shift
A range of factors explains this shift in the
balance of power to private markets. Regulation,
including the U.S. National Securities Markets
Improvement Act of 1996 and the 2012 Jobs Act,
made staying private more compelling. The
2002 Sarbanes-Oxley Act increased the burden on
public companies. Stock market listing comes
with costs, hassles, and disclosure requirements
that many are keen to avoid. Wall Street's
obsession with quarterly earnings provides another
reason for companies to stay private.
251.6
177.8
Deal Value
200
$400B
Morningstar researcher Amy Arnott is not so sure.
In " Does Your Portfolio Need Private Equity?, "
Page 34, she cites research that finds that private
and public equities are highly correlated.
also observed a wide dispersion of returns across
vehicles. So, fund selection matters.
200
100
Morningstar - Q2 2022

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