What does private equity exposure really mean for end investors? Is it about paying two and 20 for an asset class that sometimes delivers alpha through value creation and a control model of ownership, or is it simply about gaining access to unlisted companies in a world where the pool of public companies has halved over the last three decades and companies choose to stay private for longer?

It’s a question that may seem odd to pose for a publication dedicated to covering private markets. And yet, it’s a question that some influential investment consultants are asking.

In the US for example, there were almost 7,500 listed companies in 1998; in 2018 there were just under 4,400, according to data from The Center for Research in Security Prices and Aberdeen Standard Investments.

This dynamic is in part driving why Willis Towers Watson, one of the most influential gatekeepers in the pension fund industry which advises on roughly $2.6 trillion of assets, has decided to set up a working group to look at how to find a differentiated approach to private equity. Whereas in the 1990s investors could gain access to growing companies via the public markets, today more of those companies are shunning listings in lieu of capital from private equity funds, shutting off a huge pool of assets for investors such as defined contribution plans which face regulatory challenges when trying to access the asset class.

For Andrew Brown, head of private equity research at Willis Towers Watson, the private equity model will have to change.

“[Defined benefit] plans are obviously going to go the way of the dodo bird and DC plans are increasing in size,” Brown tells Private Equity International. The consultant’s plan is to get ahead of the curve and work with a manager to find a model that can allow new investors to gain access to the asset class.

Other giants of the asset management world have been exploring ways to give both their institutional and retail clients access to private equity, as we’ve explored over the past year in our Democratisation of Private Equity series. There are “tailwinds” to this effort, as Fidelity International’s chief investment officer told us last month; private equity will inevitably come “downmarket”, as Vanguard’s global private investments head told us last year.

There are regulatory and technical hurdles to cross, of course, before DC pension schemes and the every-person on the street are piling into the asset class. But one of the biggest barriers may come from private equity managers themselves. Faced with a glut of institutional investors around the globe seeking to maximise returns over public equity investments, the added regulatory burdens that come with tapping DC capital aren’t worth it. And for retail investors, many GPs “don’t get out of bed” for a $50 million commitment of high-net-worth individual capital via a feeder fund, as one industry lawyer told us this week.

Today, there might not be much appetite from GPs who can raise oversubscribed funds to tap other sources of capital. But in 15 years’ time, the picture could look very different.

Write to the author: adam.l@peimedia.com