Cross-border investment: Private capital is redefining global markets

Private capital is a “broad church”, says Fiona Cumming, London-based private capital sector lead and global co-head of our Fund Finance practice. It covers multiple asset classes, and an equally broad range of clients.

They range from big multi-strategy asset managers of which some of the best known are Apollo, Blackstone, and Ares, to boutique firms specializing in one or two asset classes, with sovereign wealth and pension funds also part of the ecosystem.

What they have in common is capital to invest, and they are putting it into an increasingly wide array of assets classes: beyond the “traditional” private equity, into infrastructure, real estate, or credit funds, and many more—including the acquisition of other asset managers.

“There’s a lot that we’re trying to pull together under the private capital sector, not just from the client’s perspective, but also from the underlying asset class perspective,” said Fiona. “Our geographical spread and the fact that we’re deep in the markets in which we operate means we’re uniquely placed to support private capital with whatever type of investments they’re doing, wherever they’re doing them. And there really aren’t many peer firms in the private capital space that can do that.”

Sports, tech, and energy lead the next wave

The types of assets that are attracting investment are not just private equity, buying and selling companies; nowadays they include infrastructure such as water companies and airports, real estate, credit (lending) and more. Other “hot” investment areas include technology, healthcare, defense, insurance and financial services, and energy—traditional, renewables, nuclear and new forms.

“Then there’s sport,” said Fiona. “Middle Eastern sovereign wealth funds and U.S. investors have been piling into sport and looking to build portfolios,” she said, citing interest in soccer, American football, basketball, tennis, and golf.

Fund managers are “always looking for the next big thing, but this trend of overlapping sectors with touch points across the different asset classes is driving the growth of these managers.”

Inter‑sector overlap means many colleagues across the firm are brought into the conversation, explained Stephen Lloyd, global head of private equity and private capital sector lead. “They are specialists with deep expertise in particular asset classes.” Using data centers as an example—assets that are increasingly important and need to be powered—he noted that the firm has a “massive advantage because we can bring together real estate, IT, M&A, and technology capabilities.”

Sovereigns and supersized pensions reshape private capital's power balance

Sovereign wealth funds, because of their size and the amount of capital they must invest, are becoming particularly important: more like a partner to some of the asset managers than when they were passive investors, said Fiona. This has the effect of changing the relative balance of power between investors and asset managers in the current environment where fundraising is relatively challenged.

“There’s more of them and they’re getting bigger,” added Stephen. Some pension funds such as those in Norway and Canada are gigantic while Australian super-funds dwarf the country’s economy.

He continued: “That money has to find a home somewhere. As they get bigger and find that they can’t invest their money at home, even if the politicians would like them to, they have to invest the money in other countries. And so, they tend to come to firms like ours where we have local knowledge of the local politics, understanding the underlying assets, having the local legal technology.”

If a Canadian pension fund, for example, were to call looking for someone who knows about Korean gas pipelines, “I’ll say ‘yes’, we have the person who knows how the government in Korea structures the tariffs on its gas pipelines and that’s what you need to know.

“Having that asset-based specialism, or really understanding the risk profile of the individual debts in a credit fund—that’s where we definitely have an advantage over other law firms.”

New York-based partner Azam Aziz, U.S. head of global financial markets and private capital sector lead, said he is seeing “a hunt more for yield and more structured credit investments” in his practice.

Funds that have private credit offerings are taking on more risk. That’s not just making loans; it may be taking risk from a bank in the form of highly structured and complex financial vehicles.

“Making conventional loans in the private credit space is still quite active,” he said, but with the leveraged buyout (LBO) market remaining suppressed, clients are trying to find risk exposure in other places. “A lot of that’s happening synthetically, through derivatives or other types of risk transfer arrangement,” he added.

“There is still a liquidity issue in the market,” Azam said. Exits are still lower than they were at the peak in 2020 and 2021 and earlier parts of the cycle; funds and investors are looking for exit opportunities at the end of the fund’s fixed term.

Secondary markets and retail gateways reshape private capital's liquidity landscape

Secondary markets have provided some of these opportunities. “We continue to see activity in the secondary markets where asset managers sell out of their positions to other asset managers,” Azam said. “We’re seeing other asset managers arrange secondary funds or continuation funds to create liquidity and exit opportunities.

“We’ve been wondering if this is just the current market cycle or a long-term trend. We think it’s here to stay.”

Stephen said secondary and continuation funds are quite new and, when new and knowledgeable investors are brought in, the asset value benefits. “With a healthcare asset, for example, you might get people who specialize in healthcare funds; you might put more than one healthcare asset under the same fund. These new investors know more about it, and ascribe more value to it.”

Another new and important feature in private capital is the retail market, he said. It has evolved from a realization by big asset managers that “huge pools of capital can be accessed by making their products available to the public.”

What managers such as Apollo, Blackstone, Bridgepoint and others have come up with are highly regulated funds, often listed on the stock exchange, that allow the public to invest indirectly in the underlying assets by investing in the asset manager itself—a “slightly ironic” situation of a stock exchange facilitating investment in assets that are off the stock exchange.