Five key drivers impacting private equity activity in 2022

13 January 2022

As we enter the new year, financial sponsors are again at the forefront of deal activity with the US economy regaining strength following a pandemic-driven slowdown. 2021 was private equity’s most active year in history1, supported by a strong fundraising environment, low interest rates and healthy capital markets. Typically, markets have been characterised as either 'buyers’ markets' or 'sellers’ markets'. Tom Amster, Global Head of Financial Sponsors at Macquarie Capital believes, however, that 2022’s market should provide something for both. In this article, he identifies five key themes that will impact the private equity landscape throughout the year and beyond, and explains why financial sponsors should take notice.

Five key themes that will impact the private equity landscape and why they matter

1. Environmental, Social and Governance (ESG) investing is becoming the norm

Inaugural ESG funds and ESG investments are occurring with increased frequency. In 2021, a record $US649 billion poured into ESG-focused funds worldwide through November 30, up from the $US542 billion and $US285 billion that flowed into these funds in 2020 and 2019, respectively2. The latest Refinitiv Lipper data shows ESG funds now account for 10per cent of worldwide fund assets and are on track to exceed $US50 trillion by 2025, representing more than a third of the projected $US140.5 trillion in total global assets under management3. Some of the largest of these funds include KKR’s Global Impact Fund ($US1.3 billion) and Apollo Global Management’s Impact Mission Fund (targeting up to $US1.5 billion), illustrating the importance of ESG investing to some of the largest sponsors in the world.

Why it matters: ESG is a secular change in the way asset managers think about investing. Its long-term staying power, in addition to societal benefits, will be driven by limited partners (LPs) demanding accountability as the price of admission for investing their capital into private equity funds. Those that don't adapt will fall behind their peers in the highly competitive market to attract capital. At Macquarie Capital, we are playing a key role in supporting the transition to a low carbon economy by progressing a range of solutions to mitigate climate change and adapt to its effects. We have committed to align our activities with the global goal of net zero emissions by 2050 by both reaching net zero for our own business operations by 2025 and aligning the emissions associated with our financing activities by 2050.

2. Continued growth in secondary markets

LP secondaries transaction volume has grown with the expansion of private equity and the secondaries market has developed into an accessible source of liquidity for investors. 2021 secondaries volume is estimated to have broken the previous record set in 2019, with a trade volume of approximately $US100 billion compared to $US83 billion for full year 2019. Some forms of secondary transactions, including fund and asset restructuring (typically referred to as GP-led deals), offer a way for GPs to either raise new cash or hold onto promising assets for longer periods than the typical 10-year private equity fund allows.

Why it matters: For years, our private equity clients have lamented they are incentivised to sell their best assets (while holding their laggards) in order to return capital to their LPs and/or establish valuation benchmarks that exhibit successful investing and support new fundraising. Continuation funds, which are used to move one or more assets out of an older fund into a new fund with the same sponsor, have helped to address that concern. LPs are given the option to a cash out at a predetermined value or to invest in the new vehicle. This results in capital being returned (if desired), valuation benchmarks established, and “winners” held longer. We believe that this is a win-win, and therefore anticipate continued outsized growth in continuation funds helping to drive sustained growth in secondary markets.

3. The return of the megadeal

In June 2021, Blackstone, The Carlyle Group and Hellman & Friedman announced the $US34 billion acquisition of Medline, an Illinois-based manufacturer and distributor of healthcare supplies. The capital structure includes almost $US15 billion of debt. Not since the $US45 billion take private of TXU in 2007, had the market seen a deal of this size.

Why it matters:  After years of record breaking and frenetic fundraising, private equity funds are now sitting on approximately $US703 billion of dry powder4. This amount of capital simply cannot be deployed via smaller deals. We believe that larger deals are inevitable, and consortiums will play a critical role in making that happen. At the same time, technical dynamics in the capital markets, including the marked increase of credit assets under management (AUM) and redemptions outstripping new supply, will support an ever-increasing quantum of debt. Indeed according to Leveraged Commentary & Data, issuance of leveraged loans to finance buyouts and other M&A set a new annual record in 2021 of $US331 billion, outpacing the 2018 full year record of $US275 billion5

4. Fund diversification (The AUM Game)

With the market applying an attractive multiple to locked-in and long-term management fees, the incentive for publicly traded alternative asset managers to grow AUM has significantly increased. The math is equally compelling for private financial sponsors, many of whom have sold minority stakes in their General Partners. Accordingly, numerous financial sponsors are adding new fund strategies in order to accelerate their AUM growth.  One of the largest alternative asset managers, Blackstone, operates 10 distinct fund businesses (Private Equity, Real Estate, Credit, Hedge Fund Solutions, Strategic Partners, Tactical Opportunities, Infrastructure, Insurance Solutions, Life Sciences, and Growth Equity). The expansion into new strategies has helped Blackstone grow its AUM to $US731 billion as of September 30, 2021, from $US89 billion at the time of its IPO in June 2007.

Why it matters: We expect to see continued fund diversification as more and more managers grow AUM by creating long-term funds, industry specific funds, growth funds, credit funds, geographically focused funds, and the aforementioned ESG funds. At the same time, we expect flagship fund sizes to continue to grow. We believe private equity’s first $US30 billion fund is on the horizon.

5. Every company is an infrastructure company

Infrastructure funds are increasingly investing into non-core areas and new asset classes that have not previously fallen under the infrastructure umbrella. The sale of Scientific Games’ Lottery Business to Brookfield Business Partners for $US6.05 billion, led by Macquarie Capital as sell-side advisor, provides a recent example of a leading infrastructure fund expanding into a gaming-adjacent sector. Infrastructure funds had already started to push into the healthcare space, a recent example being Akumin’s acquisition of Alliance HealthCare Services for $US820 million which was funded by an investment from Stonepeak.

Why it matters: Secular trends, including significant new funding from the American Jobs Plan, should continue to sustain interest and activity in infrastructure and adjacent sectors for years to come. With infrastructure funds competing for assets in new sectors, traditional private equity funds will face formidable competition given infrastructure funds’ ability to hold assets for longer than the traditional 5 to 7-year period and target lower IRRs. As the lines between traditional private equity and infrastructure investing continue to blur, Macquarie Capital, as the #1 advisor to infrastructure funds globally6, is well-positioned to help navigate the converging landscape.

At Macquarie Capital, we’re focused on providing world-class advice to financial sponsors and their portfolio companies, while using our capital creatively to help our clients achieve their objectives. Let us know how we can help you drive your business forward today.


Tom Amster

Global Head of Financial Sponsors, Macquarie Capital

  1. Pitchbook, Q3 2021 US PE Breakdown Report, 2021E Over 6000 deals closed totaling over $787 billion
  2. Reuters, Refinitiv Lipper data:
  3. Bloomberg Intelligence, ESG 2021 Midyear Outlook:
  4. Pitchbook Q2’2021 US PE Breakdown
  5. Leveraged Commentary & Data, January 1, 2022 
  6. Inspiratia Q3 2021 Infrastructure Financial Adviser Rankings