The world in 2029 according to private equity and venture capital

On 10 October, the BVCA held its flagship event in London, with more than 800 delegates gathering for a day of insight and debate on what the future holds for private equity and venture capital.

The theme for this year’s BVCA Summit: ‘the next decade for private equity and venture capital’ would be, at the best of times, fairly ambitious. As the BVCA’s chair, Cheryl Potter, noted: “At a point when you can’t imagine what the next 10 days might hold, it is a challenge to look forward to the next 10 years.”

The point was echoed by EY’s Chief Economist Mark Gregory. Given his presentation was titled ‘What might the economy of 2029 look like?’, he said: “I’m not sure what’s going to happen at 20.29 this evening.”

But after a day of debating and talking, there are some things that look more likely than not. Let’s start with the private equity and venture capital industry itself.

We are due a correction, or perhaps overdue one. LPs are looking hard at their portfolios, scenario-planning how a recession might compare to the freezing of the system and denominator effects witnessed 10 years ago. Meanwhile, despite intense competition, GPs are very price conscious. Thankfully, private market investing is not a zero-sum game, and the only limits to value creation are… creativity itself.

To be creative, you need the right raw material. Access to talent is expected to be private equity and venture capital’s battle of the next decade. Is it a problem you can just throw money at? Or are there smarter ways to tap into more diverse talent pools? Approaches to value creation between private equity firms may become a growing differentiator.

In terms of strategy, “private equity generalists are dead” said one panellist. Perhaps it was slightly overstated, but there was no real disagreement that sub-sector depth is now seen as a prerequisite for achieving strong returns.

Beyond private equity, the next decade will see Gen X come of age as consumers and citizens. As Cheryl Potter pointed out, this new generation have their own characteristics and values and expect brands to represent those. Such changes in tastes, habits and priorities is a huge opportunity for private equity and venture capital investors, and the entrepreneurs and innovators of tomorrow, whom they back.

Other changes are less clearly opportunities. In Britain today we face almost unprecedented political division, very high levels of employment but without the commensurate inflation in salaries that most economists might otherwise predict. One speaker argued that anything but the softest Brexit could see the nation become ‘branch office Britain’, with manufacturers unwilling to move goods in and out of the country. Such forces could see a swing towards leftist politics (and however narrow or wide the political divide becomes, you can be sure the BVCA engages actively across it).

For all this, the great thing about the private equity and venture capital model, and its associated mechanisms for alignment of interest and patient capital, is that it is built for uncertainty. That is one of the reasons why it has such a vital role to play in the UK and broader global economy over the coming years.

Yes, there is Brexit. But there are also powerful global forces at work. Among these, the BVCA’s Director General, Michael Moore, noted climate change, tech disruption, demographic shifts, a rebalancing of economic power, and the continuing legacy of the global financial crisis. Combine these with what Mark Gregory called “a period of de-globalisation” and you have a difficult and confused picture that sees economies, politics and society in a state of interdependent flux.

We believe such policy challenges can only be addressed by an outward-looking approach that targets high economic growth, innovation and international engagement. It is difficult to imagine any of these could be fully achieved without the contribution of private equity and venture capital. Our industry is a powerhouse and driving force for growth, change, experimentation and internationalisation. And anyone who attended our Summit could be in no doubt as to the industry’s commitment to responsible and socially minded conduct.

We have a world-class story to tell about this industry’s role in combining economic value with social value to create tangible public value. It’s time to tell it.

www.bvca.co.uk