| This week we look at how private markets fared in 2018. Plus, why you’d rather be an average company in a great industry, and reading picks from Kimberly Henderson, a partner in Chicago who has vowed to read 52 books this year. |
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| There’s something interesting afoot in private markets. While annual fundraising slid 11 percent in 2018, it still pulled in $778 billion of new capital. And global private equity (PE) net asset value has grown more than sevenfold since 2002, outpacing publicly traded shares. |
| What’s going on? Investors apparently believe that to have diversified participation in global growth, they need to invest in private markets—including PE, debt, infrastructure, real estate, and natural resources. This sentiment builds on a solid 2017, when the industry continued to scale and megafunds of more than $5 billion played a big role. |
| McKinsey’s new 2018 annual review, Private markets come of age, examines this expanding and developing industry in detail. Some choice findings: secondaries—funds that buy investors’ positions in other private-market funds—have grown rapidly, making the asset class easier to enter and exit. By injecting liquidity, these funds are allowing limited partners (LPs) to shift strategies and manage lineups more quickly, and helping general partners (GPs) restructure and extend legacy funds. They also offer increasing flexibility for investors to diversify and manage portfolio-construction risk. |
| Another trend: savvy GPs have expanded their firms’ ability to take advantage of today’s most prominent sources of value creation. McKinsey research shows that the 25 largest GPs all have operating teams, and most plan to expand them. Leading firms have also pioneered several digital techniques to wrest greater efficiencies in operations, deal sourcing, due diligence, and other core activities. |
| Deal multiples have continued to rise—to 11.1 times, from 10.4 times in 2017—spurred in part by record levels of dry powder (cash committed but not yet invested), at $2.1 trillion. Deal value hit a record, but the number of deals remained relatively flat for the fourth consecutive year. |
| On balance, the industry is in good health. Even with the slowdown in fundraising, 2018 was the third-highest year on record. Venture capital had one of its best years in memory, continuing a stretch in which it has outperformed other PE segments. If we look back at 2007, the last high-water mark, the industry may be in a better position now to weather the next downturn, whenever it comes. |
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| OFF THE CHARTS |
| Better average than great? |
| What’s the single biggest determinant of how your company performs relative to others? The industry you compete in. Industry effects are so substantial that average companies in great industries tend to outperform great companies in poor industries. |
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| MORE ON MCKINSEY.COM |
| Supercharging retail sales | Are physical stores stepping on online business? Are outlet stores taking customers away from prime retail locations? There’s a handy way for retailers to understand the interactions between their online and offline channels: geospatial analytics. |
| Australia’s automation opportunity | Automation and artificial intelligence present an enormous opportunity for national and personal income growth in Australia and could add up to $4 trillion to its economy. |
| Getting practical with supply-chain risk | How do organizations manage growing supply-chain risks as the world becomes more interconnected? By building robust programs for managing both the known and unknown. It’s not as impossible as it sounds. |
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| WHAT WE’RE READING
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| Kimberly Henderson |
| Kimberly Henderson, a partner in McKinsey’s Chicago office, is an expert on sustainability and climate-related challenges. Her focus is on supporting companies across sectors on sustainability topics. On the personal front, she has set a goal of reading a book a week in 2019.
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| I read Michelle Obama’s Becoming expecting to be fascinated by the chapters about her life in the White House. Instead, I found the chapters on her early years, growing up as a black woman on the south side of Chicago, to be the most compelling. She described a Chicago very different from the one I know. And she made me more attuned to the experiences of minorities in our cities (and in our Ivy League schools and in professional life). Even as a white woman working in energy/consulting, I often feel like I don’t fully belong. That challenge is at another level for black women, especially a couple decades ago as Michelle was coming of age. The book also reminded me of what an impressive woman she is in her own right. |
| I’m very particular about sleep—I try to always sleep eight hours a night. I see it as critical for good health (and to perform at my best, and just be a nice person!). I read Sleep Smarter by Shawn Stevenson to get more tips on how to improve the quality of my sleep, not just the quantity. I haven’t quite implemented all the tips, but I’ve adopted a few, like traveling with an eye mask in case I end up in a hotel room that isn’t dark enough (often the case). I also have my screens eliminate blue light at dusk (there’s a special setting for this—who knew?) and try to stop using my laptop late in the evening. |
| How Not to Die by Michael Greger, MD, sounds a bit grim, but it’s actually quite interesting and useful. Each chapter is on a major medical cause of death (for example, breast cancer, Alzheimer’s, heart disease) and what preventative measures you can take. The punchline: eat more plants. We as a society are eating the wrong things. I’m vegetarian, so I have a good start—but I found that even my diet could be dramatically improved. I got great tips from this book that I’ve integrated into my diet, like eating lots of flaxseed and drinking hibiscus tea. |
| I’m outspoken and happy to present in front of a crowd. That said, my energy gets depleted from social interaction, and I love to spend weekends at home reading a book. Quiet by Susan Cain helped me realize that I am an introvert disguised as an extrovert, and to make sure I plan my time accordingly. This book helped me get to know myself better. |
| The Uninhabitable Earth: Life After Warming by David Wallace-Wells is a good summary of the state of climate-change science and what we’re in for if things don’t change. Another call to arms for society to address this problem. A lot of the content I’m broadly familiar with (as I’ve been working in the climate space for years), but it’s a valuable reminder for me on why I do what I do. |
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| BACKTALK |
| Have feedback or other ideas? We’d love to hear from you. |
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