Private 
markets 
rally to new 
heights 
McKinsey Global Private Markets Review 2022 
March 2022

Copyright © 2022 McKinsey & Company. 
All rights reserved. 
This publication is not intended to be used as the 
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No part of this publication may be copied or 
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consent of McKinsey & Company.

Contents
Executive summary	
2
1
Private markets	
5
bounce back
Private markets fundraising	
6
Private markets AUM 	
7
Structural demand 	
8
from institutional investors 
fuels growth
Private markets performance 	
10
2
Private equity shows 	
13
enduring strength
Fundraising	
14
AUM	
20
Performance	
22
Deal activity 	
26
Deal multiples and leverage 	
28
3
Real estate rebuilds 	
30
Closed-end funds	
31
Open-end funds	
33
AUM	
33
Limited consolidation but 	
34
benefits of scale
Deal volume 	
36
Spotlight on US multifamily	
39
Spotlight on US property	
40
technology
4
Private debt 	
42
extends again
Fundraising	
43
AUM	
46
Performance	
47
5
Infrastructure and 	
48
natural resources: 
Beyond roads and bridges
Fundraising 	
49
AUM and performance	
50
Mandate expansion	
51
6
ESG: Progress on 	
53
the ‘E’ and the ‘S’ 
E: Sustainability calls for 	
55
a new set of priorities
S: Private markets firms are 	
57
making progress on diversity
7
Digital and analytics: 	
62
Efficiency and 
performance through 
digitization
Authors	
65
Further insights	
65
Acknowledgments	
66

Executive summary
Welcome to the 2022 edition of McKinsey’s 
annual review of private markets investing. Our 
ongoing research on the industry’s dynamics 
and performance has revealed several insights, 
including the following trends: 
Private markets bounced back in 2021. After a 
year of pandemic-driven turbulence that suppressed 
fundraising and deal activity, private markets 
rebounded across the board. Fundraising was up by 
nearly 20 percent year over year to reach a record 
of almost $1.2 trillion; deal makers were busier than 
ever, deploying more than $3.5 trillion across asset 
classes; and assets under management (AUM) grew 
to an all-time high of $9.8 trillion as of July, up 
from $7.4 trillion the year before. Dollars continued 
to fund higher risk-return strategies in private 
equity (PE) and infrastructure and rotated into riskier 
strategies in real estate.
A new set of risks emerged at the beginning of 
2022 with the potential to undermine growth and 
performance. The Russian government’s invasion 
of Ukraine, higher inflation and interest rates, and 
supply chain and labor challenges are already 
increas­ing volatility three months into the new year.
Private equity continued to drive global growth 
in private markets. Fundraising rebounded across 
regions, and global totals fell just short of the pre-
pandemic peak established in 2019. AUM reached a 
new high of $6.3 trillion, driven primarily by asset 
appreciation within portfolios. With a pooled IRR of 
27 percent in 2021, PE was once again the highest-
performing private markets asset class. PE 
also continues to outperform relative to most public 
market equivalent (PME) measures.
LPs increased their exposure to earlier-stage 
private investing. Venture capital (VC) continued to 
attract capital on the back of a decade of strong 
performance but was outpaced by growth equity. 
With increased funding for VC and companies 
remaining private for longer, the investable universe 
of growth companies has expanded substantially. 
PE firms have moved to fill the space, and the supply 
of growth equity vehicles has evolved: in the last 
ten years, six of the ten largest buyout managers 
have launched a growth vehicle. Today, VC and 
growth equity combined make up 47 percent of PE 
fundraising, just shy of buyout’s share.
PE fundraising ‘winners’ do so by growing their 
flagships and raising more frequently. While 
product proliferation plays a role, the 20 firms that 
have gained the greatest share of new capital 
raised over the last five years have done so 
predominantly by raising larger and more frequent 
flagship vehicles. These firms more than doubled 
the size of their flagship funds over the preceding 
half decade and raised every three years, on 
average. Last year’s report showed that top-quartile 
2
Private markets rally to new heights

performance of the preceding vehicle in a fund 
family tends to lead to rapid growth of the next 
iteration. This year’s data show that strong 
performance coupled with rapid deployment leads 
to share capture. 
Deal activity surged, but average deal multiples 
did not. Global buyout and growth equity deal 
volume grew nearly 50 percent year on year to over 
$2 trillion in more than 14,000 transactions. A 
pandemic-driven backlog of companies that delayed 
sales processes in 2020 undoubtedly played 
a role in this year’s record total. At the same time, 
buyout multiples declined slightly, perhaps due to a 
pandemic-driven mix shift in sectoral activity. 
‘Risk on’ in real estate. Within real estate, investors 
rotated to higher risk-return strategies relative 
to their prepandemic preferences, which perhaps 
reflects investors anticipating buying opportunities 
in a stressed or distressed environment. Though 
valuations in several key real estate sectors fell in 
2020, widespread distress has not materialized 
as many thought it might. Fund­raising in opportu­
nistic and value-add strategies grew sharply 
(57 and 12 percent, respectively) while open-end 
core and core-plus funds experienced net outflows. 
Investor concerns about rising inflation may 
prove to be a tailwind for the asset class, given its 
inflation-hedging properties. 
Beds and sheds stayed warm. Deal volume in 
industrial properties (such as distribution centers) 
and multifamily housing grew, backed by changes 
in how people shop and where they live. The 
accelerated adoption of e-commerce during the 
pandemic stimulated interest in new industrial 
development. Despite fears of urban flight, hybrid 
work appears to be the default position, keeping 
employees within commutable ranges. In the US, 
rising rents and home prices showed little sign 
of slowing down. 
Private debt is an asset class for all seasons. 
Fundraising growth continued in private debt, 
the only private asset class to grow fundraising 
every year since 2011, including through the 
pandemic. This cyclical resilience is partially driven 
by the diversity of private debt substrategies: 
when one zigs, another usually zags. Over the longer 
term, growth has been driven by a dramatic 
expansion in direct lending strategies, which have 
accounted for 73 percent of fundraising growth 
in the last decade.
Infrastructure—more than roads and bridges. 
In 2021, infrastructure and natural resources set all-
time highs for fundraising, AUM, and deal volume; 
indeed, global AUM broke the $1 trillion mark for the 
first time. Over the last decade, infrastructure’s 
mandate has evolved. Capital is increasingly flowing 
into subsectors that support the energy transition 
and digitization, such as alternative energy, clean-
tech solutions focused on improving environmental 
sustainability, and “infratech.” Investors are also 
looking beyond physical assets at operating compa­
nies and technologies to generate value. 
The sustainability transition presents 
opportunities and risks—both substantial. GPs 
and LPs continued to formalize environmental, social, 
and governance (ESG) commitments in 2021: 
over half of total fundraising—the highest percentage 
ever—flowed to firms with formal policies. Investors 
have become particularly focused on environmental 
sustainability, a potential win-win for private 
markets investors who support positive impact 
while driving returns. Firms can create value 
by trans­forming unsustainable business models into 
green ones and investing in companies scaling 
decarbon­ization technologies. Considering climate 
risk in underwriting is now an imperative; 
those that do not run the risk of mispricing 
their investments.
3
Private markets rally to new heights

Private markets firms are making progress 
on diversity, but work remains. US PE firms have 
increased the percentage of ethnically diverse 
talent and women holding junior-level roles, and 
have made strides in female promotion and 
retention. On some metrics, PE firms even compare 
favorably with major corporations, although 
ethnic diversity is not yet broad based. Ethnic and 
gender diversity have not yet reached the 
C-suite at levels that would imply equity in the 
industry, suggesting that firms broadly continue 
to miss opportunities. 
Key lessons emerge as firms accelerate 
investment in digital and analytics. Leading firms 
continue to make major investments in digital 
and analytics capabilities across both front and 
back office to capture economies of scale as 
they grow. Most are focused on building advanced 
analytics capabilities to identify opportunities 
and create value and on setting up investor portals 
to drive LP satisfaction, but they also get the 
basics right by creating high-quality digital infra­
structure. As more investment institutions 
embark on digital transformation, they will need 
to focus on setting a use-case-driven vision, 
fighting for talent, and getting commitment from 
the C-suite. 
About this report
McKinsey is the leading adviser to private 
markets firms, including private equity, 
real estate, private debt, and infrastructure 
firms, with a global practice substantially 
larger than any other firm. We are also the 
leading consultant partner to the 
institutional investors that allocate capital 
to private markets, such as pensions, 
insurance companies, sovereign wealth 
funds, endowments, foundations, and 
family offices.
This is the 2022 edition of our annual review 
of private markets.1 To produce it, we have 
developed new analyses drawn from our 
long-running research on private markets, 
based on the industry’s leading sources 
of data.2 We have also gathered insights 
from our colleagues around the world who 
work closely with the world’s leading 
GPs and LPs.
This report consists of two main sections: 
the first more numbers-driven,3 the second 
more qualitative. The first section includes 
in-depth analysis of industry developments 
and trends in fundraising, performance, 
AUM, and deals across several private 
market asset classes: private equity, private 
debt, real estate, and natural resources 
and infrastructure. The second section 
(chapters six and seven) explores changes 
in private markets firms themselves, 
focusing on ways they address ESG and 
build out their digital capabilities. 
We welcome your questions and 
suggestions at investing@mckinsey.com.
1	We define private markets as closed-end funds investing in private equity, real estate, private debt, infrastructure, or natural resources, as well as related secondaries and 
funds of funds. We exclude hedge funds and, except where otherwise noted, publicly traded or open-end funds.
2	Asian Venture Capital Journal (AVCJ), Bloomberg, Burgiss, Cambridge Associates, CBRE Research, CEM Benchmarking, CoStar, FTSE Russell, Global News, Green Street, 
Hamilton Lane, Infra-Deals, Jefferies Group, Joint Center for Housing Studies of Harvard University, Jones Lang LaSalle, LeanIn.org, Nareit, National Association of 
Realtors, National Association of Software and Service Companies (NASSCOM), National Council of Real Estate Investment Fiduciaries, Pew Charitable Trusts, PitchBook, 
Preqin, Principles for Responsible Investment (PRI), Private Equity International, Real Capital Analytics, Refinitiv, Science Based Targets initiative (SBTi), S&P Capital IQ, 
S&P Global, Securities and Exchange Commission, United States Census Bureau, United States Federal Reserve, Wall Street Journal, Wharton School of the University of 
Pennsylvania, World Bank, World Federation of Exchanges, Yardi Matrix, Zumper.
3	For 2021, all data are based on reported numbers and will likely adjust as more figures continue to be reported. Performance data are as of September 30 for vintages 
2008–18, unless otherwise noted; AUM data covers the 12-month period ending Q2; and fundraising data cover the full year 2021. All data for Asia exclude Australia and 
New Zealand unless otherwise noted.
4
Private markets rally to new heights

1
Private markets 
bounce back
Private markets rebounded in 2021, after 
a year of pandemic-driven turbulence that 
suppressed fundraising and deal making. 
Fundraising climbed to a record of almost 
$1.2 trillion, up by almost 20 percent over 
2020. Growth was widespread across asset 
classes and geographies, and deal­ makers 
were busier than ever, deploying more than 
$3.5 trillion across asset classes.
Total assets under management across 
private markets reached an all-time high of 
$9.8 trillion as of June 30, 2021, up from 
$7.4 trillion 12 months prior. Asset 
appreciation drove the majority of AUM 
growth, but dry powder also increased, up 
16.6 percent over the prior period.
5
Private markets rally to new heights

Institutional investors have continued to increase 
allocations to private markets at the expense of 
public markets, driven principally by private 
markets’ outperformance. CEM Benchmarking 
notes an average allocation to private markets of 
18.5 percent as of 2020, up nearly five percentage 
points since 2012. Nonetheless, institutional 
investors broadly remain underweight their 
targets to private markets. Meanwhile, retail 
investors, for whom access to the private markets 
has long been constrained, are receiving more 
attention. Private markets GPs are launching new 
products, devising alternative vehicle structures, 
and building out in-house whole­saling teams 
to tap into this vast pool of capital.
Finally, the highest-performing private 
markets asset class will come as little surprise: 
for the fifth consecutive year, PE took 
the top spot.
Private markets fundraising
2021 was a record year for fundraising, reaching 
almost $1.2 trillion (Exhibits 1 and 2). The total is 
almost $200 billion more than in 2020, when 
COVID-19 dramatically slowed fundraising in the 
second and third quarters, and approximately 
$20 billion above the previous fundraising peak in 
2019. Growth in North America (22 percent) was 
faster than Europe (17 percent) or Asia (13 percent). 
Private markets fundraising by region,1 $ billion
1Excludes secondaries, funds of funds, and co-investment vehicles to avoid double counting of capital fundraised.
Source: Preqin
2011
2009
2007
2005
2003
2013
2015
2017
2019
2021
2016–21 
CAGR, %
2020–21 
growth, %
96
196
325
479
615
658
287 310
380
434
597
677
778
873
1,003
1,084
1,166
990
1,184
Total
19.7
6.3
29.7
10.7
Rest of 
world
13.1
–5.6
Asia
16.9
8.1
Europe
21.6
9.2
North 
America
+20% 
p.a.
Exhibit 1
Private markets fundraising reached a new high.
6
Private markets rally to new heights

Private
markets
688.8
122.3
21.6
147.7
17.1
13.1
293.1
42.5
16.9
54.7
12.5
29.7
1,184.3
194.4
19.7
1Excludes secondaries, funds of funds, and co-investment vehicles to avoid double counting of capital fundraised.
2Closed-end funds that invest in property. Includes core, core-plus, distressed, opportunistic, and value-added real estate, as well as real-estate debt funds.
Source: Preqin 
North America
Total, $ billion
2020–21, $ billion
YoY change, %
Europe
Total, $ billion
2020–21, $ billion
YoY change, %
Asia
Total, $ billion
2020–21, $ billion
YoY change, %
Rest of world
Total, $ billion
2020–21, $ billion
YoY change, %
Global
Total, $ billion
2020–21, $ billion
YoY change, %
Private equity
Asset class
400.4
79.3
24.7
134.1
15.8
13.3
111.7
17.6
18.7
33.5
11.5
52.4
679.9
124.3
22.4
Real estate2
119.6
38.8
48.0
28.2
–13.5
–32.3
20.2
0.9
4.8
7.5
0.2
2.4
175.5
26.4
17.7
Private debt
123.4
13.4
12.2
56.7
5.6
10.9
9.2
–0.8
–7.9
2.7
0.0
–0.1
192.0
18.2
10.5
Natural
resources and
infrastructure
45.5
–9.2
–16.8
6.6
–0.6
–8.6
74.1
34.6
87.7
10.9
0.8
8.1
137.1
25.7
23.0
Private markets in-year fundraising,1 2021
Exhibit 2
Private markets fundraising grew approximately 20 percent in 2021.
Private markets AUM 
Private markets AUM reached an all-time high of 
$9.8 trillion in the first half of 2021, 33 percent 
higher than the year before. The jump was driven 
primarily by an increase in net asset value (NAV),1 
which grew by $2.0 trillion. NAV growth was, in turn, 
driven principally by higher valuations on unrealized 
assets; invested capital and distributions were 
roughly equivalent during the year, producing 
1	NAV = new capital invested – capital distributed + change in value of unrealized capital.
2	Private equity includes buyout, venture capital, growth, and other PE.
offsetting AUM impacts, while dry powder growth 
had a relatively small impact on AUM growth during 
the period.
AUM increased in all private asset classes and 
particularly in private equity,2 where AUM 
grew 37.7 percent to $6.3 trillion. PE’s AUM now 
accounts for nearly two-thirds of the total 
across private markets globally. 
7
Private markets rally to new heights

Private market assets under management, H1 2021, $ billion
Note: Figures may not sum precisely, because of rounding.
Source: Preqin
100% =
2,994 (31%)
1,829 (19%)
988 
(10%)
484 
(5%)
1,188 
(12%)
1,248 
(13%)
1,115 
(11%)
$431 
(4%)
$2,068 
(21%)
$5,216 
(53%)
$2,130 
(22%)
68 (2%)
36 (3%)
$351 
(30%)
806 (27%)
331 (11%)
1,789 (60%)
83 (5%)
159 (9%)
830 (45%)
757 (41%)
56 (6%)
90 
(9%)
507 
(51%)
$85 
(7%)
334 
(34%)
$716 
(60%)
$110 
(10%)
$338 
(30%)
$116 
(10%)
$552 
(49%)
$58 (5%)
$334 (27%)
$132 (11%)
$723 (58%)
Asia
Europe
Buyout
Growth Other
Venture capital
Private equity
Real assets
Private 
debt
Infrastructure 
and natural
resources
Real
estate
North 
America
Rest of world
Exhibit 3
More than half of global AUM is in vehicles targeting North American investments.
Slightly more than half of global AUM resides in 
vehicles targeting North American investments 
(Exhibit 3). Europe and Asia are roughly equivalent 
in AUM, comprising 21 percent and 22 percent 
respectively—remarkable parity given the fact that 
Asia’s AUM was just 60 percent of Europe’s 
five years ago. 
Structural demand from institutional 
investors fuels growth
Private markets’ threefold growth in fundraising over 
the last decade has been powered by more 
institutional investors participating and at higher 
average target allocations. In the sustained low-rate 
environment of the last decade, institutional 
8
Private markets rally to new heights

investors have steadily increased their allocations 
to private markets in a bid to achieve greater returns. 
There is good reason to believe that demand will 
continue to grow as LPs broadly remain below their 
respective targets for private markets asset 
classes. Over the last several years, the combination 
of rising targets and strong public market 
performance has increased the dollar gap between 
actual allocation and target allocation despite 
record commitments to private equity. 
The composition of institutional demand has also 
changed. Endowments and foundations (E&Fs) were 
early movers, and private market alloca­tions have 
long been a hallmark of the “endowment model.” 
E&Fs continue to maintain higher targets than other 
institutional investors (Exhibit 4). But the dynamic 
has shifted over the last 20 years, and today most 
limited partner capital comes from larger capital 
pools. Chief among these are pensions, which have 
transitioned formerly conservative approaches 
Allocations to PE,1 2021, % of AUM 
1Allocation as of end of 2021. Shifts in public equities can impact allocation gap.
Source: Preqin
Target 
allocation, 
%
Gap to target allocation, 
percentage points
Public pension 
funds
Private sector 
pension funds
Insurance 
companies
20
15
10
5
0
0
0.5
1.0
1.5
2.0
Size of capital pool
Endowments 
and foundations
Exhibit 4
In 2021, institutional investors remained shy of private equity allocation targets.
9
Private markets rally to new heights

closer to the endowment model, in part because 
most pensions remain underfunded, with liabilities 
that exceed their assets.3 For instance, private 
equity targets for private- and public-sector 
pensions tend to be in the range of 7 to 8 percent 
of assets. These relatively mature pools are 
roughly half to one and a half percentage points 
below target. For E&Fs and pensions, the gap to 
target allocation has closed in recent years.
Two additional large pools of capital from insurance 
and retail have garnered attention from GPs. 
Several GPs, especially those with mature private 
credit investing capabilities, have created 
strategic relation­ships with insurance capital pools 
or acquired them outright. Retail investors, 
representing a pool of over $50 trillion, are a second 
large source of capital with growing interest in 
3	In 2019, the last year with official data, unfunded liabilities of state and local pensions totaled $4.1 trillion, as shown in “State and local 
government pension funding status, 2002–2019,” Federal Reserve, updated December 17, 2021. Estimates suggest the funding gap has since 
declined, as discussed in “The state of pension funding gap: Plans have stabilized in wake of pandemic,” Pew, September 14, 2021. 
4	Preqin special report, “Future of Alternatives 2025.”
private markets. Allocations today remain in the 
low single digits, principally due to historical 
access constraints, but a combination of changing 
regulations, product innovation, and new GP 
distribution capabilities is bending the penetration 
curve. A recent survey4 found that over a third 
of private markets managers anticipated having 
a retail-oriented vehicle in the next five years; 
just 9 percent have one today.
Private markets performance 
For the fifth consecutive year, PE was the highest-
performing private markets asset class. PE’s in-year 
returns for 2020 and 2021 have substantially 
exceeded those of all other years following the 
global financial crisis (GFC). 
Institutional investors remain shy of 
their private markets allocation 
targets despite record commitments 
in recent years.
10
Private markets rally to new heights

Global fund performance by asset class, 2000–18 vintages,1 %
50
40
30
20
0
–10
10
2000
2002
2004
2006
2020
2018
2016
2014
2012
2010
2008
–20
–30
–40
1Fund performance assessed using IRR calculated by grouping performance of 2000–18 funds during 2000–21. Some data not available for certain 
periods. IRR for 2021 is for the ﬁrst 9 months (YTD as of Q3 2021).
Source: Burgiss
Private equity
Private debt
Real estate
Natural resources
Infrastructure
Exhibit 5
PE remained the highest-performing private markets asset class in 2021.
Compared with the year prior, natural resource 
investors achieved the most significant improvement 
in returns, propelled by rebounding commodities 
prices. Closed-end real estate and private debt 
funds likewise improved, while infrastructure and 
private equity underperformed relative to last 
year (Exhibit 5). 
The gap in returns between top- and bottom-quartile 
PE funds is 20 percentage points, which indicates 
that vintage year timing, sub-asset class allocation, 
and manager selection all have the potential to 
add to or subtract meaningfully from portfolio 
performance. However, a fund at the top of the fourth 
quartile in PE would still have beaten a median fund 
11
Private markets rally to new heights

Global fund performance by asset type, net IRR to date through Sept 30, 2021, 
2008–18 vintages, %1
Private equity 
Private debt 
Real estate
Natural resources
Infrastructure
Note: Figures may not sum precisely, because of rounding.
1Methodology: IRR spreads calculated for funds within vintage years separately and then averaged out. Median IRR was calculated by taking the average of the 
median IRR for funds within each vintage year.
Source: Burgiss
30.5
19.5
10.5
12.4
9.4
7.0
16.0
10.7
5.3
14.0
8.6
3.1
9.0
3.3
–1.9
10.8
5.4
20.0
10.9
10.9
Top 25%
Bottom 25%
Median
Exhibit 6
PE outperforms asset classes across quartiles.
in most other private asset classes (Exhibit 6). In 
other words, despite high dispersion, investing in PE 
has been rewarded in what have been benign years 
for investors since the GFC.
Conversely, an extended period of declining energy 
prices has muted returns for natural resources 
funds. Even with a strong year in 2021, the median 
net IRR to date of funds raised in 2008–18 stands 
at 3.3 percent, while fourth-quartile funds lost 
money. In other words, taking commodity risk has 
mostly been punished.
12
Private markets rally to new heights

2
Private equity shows 
enduring strength 
2021 was a banner year for private equity. 
The asset class continues to showcase 
resilience, growth in demand, and consistent 
outperformance compared with all other 
major asset classes. Practitioners have 
sustained this strength by deploying capital 
over an ever-growing population of deals.
Fundraising in PE rebounded globally, 
falling just short of a full recovery to pre-
COVID-19 levels. LPs increased their 
exposure to earlier-stage private investing, 
as they did prior to the pandemic. VC 
continued to attract capital on the back of 
a decade of strong performance but was 
outpaced by growth equity. With increased 
funding for VC and companies remaining 
private for longer, the investable universe of 
growth companies has grown substantially. 
Together, VC and growth equity made 
up 47 percent of PE fundraising, just shy of 
buyout’s share of 49 percent.
PE’s AUM reached new heights in 2021, 
driven primarily by the increase in NAV due 
to higher-marked valuations. As it has for 
13
Private markets rally to new heights

the last decade, PE continued to outperform 
other private markets asset classes (its median 
IRR is markedly higher), as well as public 
markets equivalents. Median funds in every PE 
vintage since 2009 have returned, to date, 
at least 1.06 times the returns of PMEs. 
Deal making surged, as many deals that were 
held up during the pandemic came to fruition. 
Global buyout and growth activity raced 
past 14,000 deals to reach $2.04 trillion in deal 
volume. At the same time, buyout multiples 
in the US declined slightly, perhaps due to a 
pandemic-driven mix shift in sectoral activity. In 
a year of strong deal activity, the rate of growth 
in dry powder slowed and inventories fell. 
Fundraising
Fundraising rebounded in 2021 to $680 billion 
(Exhibit 7), continuing the long-term trend of 
fundraising growth.
Strong fundraising growth in 2021 was fueled by a 
few specific sub-asset classes and regions: relatively 
higher-risk growth equity and VC segments hit 
record fundraising levels. Fundraising for growth 
equity, which posted the biggest decline among 
PE sub-asset classes in 2020, rebounded 
across all major regions to reach $132 billion globally. 
Meanwhile, the allure of VC’s potential returns 
continues to attract institutional capital—top-
performing managers remain perpetually 
oversubscribed—and the strategy is now 36 percent 
above pre-COVID-19 fundraising levels, at 
$185 billion in 2021. VC fundraising was driven 
primarily by 31 percent growth in North American–
focused funds. 
Conversely, buyout, still the largest PE sub-asset 
class for both fundraising and AUM, had a slower 
recovery. Buyout fundraising grew modestly, and its 
$331 billion tally remains below the prepandemic 
peak in 2019, when a record number of $10 billion–
5	Preqin.
6	Preqin.
7	Fundraising share gain was determined by comparing fundraising share between 2012 and 2016 and 2017 and 2021.
plus megafunds were raised. The average buyout 
fund size in 2021 was roughly a quarter below 2019’s 
average. Nevertheless, since 2016, buyout has had 
5.8 percent annualized growth, and leading buyout 
players have grown primarily through the increased 
size of flagship funds. 
PE’s average fund size across strategies stands at 
approximately $340 million, up from approximately 
$210 million in 2016.5 There were nine $10 billion 
funds in 2021; seven additional megafunds are cur­
rently in the market tracking for 2022 final closes. 
All regions other than Asia reached new single-year 
fundraising records in 2021.6 North America led the 
pack at $400 billion, up by nearly a quarter. Over the 
five-year period ending 2021, fundraising in North 
America grew 13.2 percent, outpacing both Europe 
(up 6.1 percent) and Asia (down 7.1 percent).
Asia’s overall fundraising increased 19 percent year 
over year to reach $112 billion (despite a 22 percent 
decline in buyout last year). Even so, Asian PE’s 
fundraising remained roughly half of its $215 billion 
peak in 2017, due in part to lower VC and growth 
equity fundraising and in part to general cyclicality. 
Drivers of fundraising
The most successful PE firms in terms of share gain 
raise more capital more frequently while expanding 
to new product families. The average flagship 
fund size of the top 20 fundraising share gainers7 
more than doubled to $10.7 billion since 2016. 
As they expanded, they raised funds almost twice 
as quickly (35 months compared with 60 months) 
over the last five years compared with the previous 
five. Their product families proliferated from 1.7 to 
2.3, on average. 
Of the top 20 firms, almost all have dedicated teams 
for technology or healthcare, which speaks to 
the growing importance within PE of these rapidly 
expanding sectors and the need for specialized 
teams to successfully invest in them. Three-quarters 
14
Private markets rally to new heights

of the top firms have launched a growth or middle-
market fund adjacent to their flagship products; 
roughly half are large, multiasset managers. 
While all of these firms are riding the industry 
wave, they outpaced broader PE growth primarily by 
aggressively scaling flagship fundraising. Our 
attribution analysis shows that growth was primarily 
due to increased flagship fund size, which accounted 
for 60 percent of total growth. An additional 
30 percent of total growth stemmed from more 
frequent flagship raises, while just 10 percent 
was due to the number and magnitude of non-
flagship products.
	8	Burgiss.
The rise of growth equity 
Growth equity’s increased fundraising has been 
driven by its improving return profile, the significant 
capital flows into VC and subsequent expansion 
of the investable pool of growth companies, and the 
increased supply of growth vehicles, especially 
from established multiasset managers.
For most of the last 15 years, growth equity’s returns 
have been weaker than those of other PE strategies. 
Growth yielded a median net IRR of 13.1 percent since 
inception for fund vintages 2008–18, compared 
with 18.0 percent and 23.8 percent for buyout and 
VC, respectively.8 Perhaps as a result, fundraising 
Global private equity fundraising by asset subclass,1 $ billions
1Excludes secondaries, funds of funds, and co-investment vehicles to avoid double counting of capital fundraised.
2Includes turnaround PE funds and PE funds with unspeciﬁed strategy.
Source: Preqin
2016–21 
CAGR, %
2020–21 
growth, %
Total
22.4
4.1
236.1
12.1
Other PE2
56.6
4.2
Growth
17.8
9.8
Venture
8.6
5.8
Buyout
2010
153
2011
213
2012
207
2013
299
2014
364
2015
397
2016
492
2017
595
2018
653
2019
688
2020
556
2021
680
+22% 
p.a.
Exhibit 7
Growth and VC hit record fundraising levels in 2021.
15
Private markets rally to new heights

also lagged: growth equity’s 9 percent annualized 
growth rate since 2011 trails the rest of PE’s 
13 percent per annum.9 However, returns for more 
recent vintages have started to close the gap to VC 
and buyout.
Growth equity’s sequential nature to VC means 
that as VC has grown in an environment where firms 
stay private for longer, the investable universe of 
growth companies is likely as large as it has ever 
been. As discussed in last year’s report, the demand 
for VC investments has been increasing in recent 
9	Preqin.
years, leading VC-focused firms to inject significant 
capital into early-stage companies. Opportunities 
are created for growth capital to bridge the funding 
gap between VC and buyout, as those companies 
mature and are held private for longer than before. 
Given these dynamics, PE firms have moved into 
growth equity, and LPs have demonstrated 
willingness to commit capital. Traditionally VC- and 
buyout-focused firms, and especially established 
multiasset managers, have increased their share of 
growth equity fundraising (Exhibit 8). Large buyout-
Global growth equity fundraising by manager type, 3-year trailing, %
Note: Figures may not sum precisely, because of rounding.
1Other includes other PE, real estate, infrastructure, and private debt.
Source: Preqin
Other1
Buyout
Venture capital
Growth
2003
2006
2009
2012
2015
2018
2021
92
3
1
4
7
91
80
80
9
10
78
71
13
10
8
8
9
19
68
16
12
Exhibit 8
Buyout and VC firms have been supplying more growth vehicles and gaining 
share of growth equity fundraising.
16
Private markets rally to new heights

focused players are particularly active (Exhibit 9). In 
the last ten years, six of the ten largest buyout 
managers in terms of fundraising launched a new 
growth investment vehicle. As they continue 
to proliferate product offerings, growth stands out 
as a natural next frontier.
The geographic focus of growth equity fundraising 
has also shifted. In the first half of the 2010s, 
fundraising for Asia-focused funds drove the majority 
of growth in the strategy. While that was again 
true in 2021, when Asia posted the fastest fund­
raising growth across geographies, fundraising 
10	AVCJ, PitchBook, S&P Capital IQ.
in the region is still well below 2016–17 levels. 
Cyclical trends play a role: as growth equity 
fundraising in Asia expanded, capital deployment 
failed to keep pace, causing inventory on hand 
(capital committed but not deployed, divided by 
equity deal value) to increase from 1.8 to 2.6 years, 
which put downward pressure on fundraising.10 
Since then, inventory on hand has leveled off, 
indicating potential tailwinds ahead. We should note 
that growth in Asian fundraising is mainly attributable 
to China, where the boundary between growth 
and other PE investment is often blurry, potentially 
obscuring fundraising nuances.
Growth equity fundraising for large and small buyout managers,1 
trailing 3 years, $ billion
2009
2006
2003
1Large buyout managers have raised a >$5 billion buyout fund in the period 2003–21.
Source: Preqin
2012
2015
2018
2021
2016–21 
CAGR, %
N
Large buyout 
manager
21
19.3
133
–2.0
Small buyout 
manager
30
20
10
5
15
25
35
0
Exhibit 9
Since 2017, growth equity fundraising by large buyout managers has expanded 
more than threefold.
17
Private markets rally to new heights

Since 2016, growth capital shifted toward North 
America– and Europe-focused vehicles (Exhibit 10). 
Europe may represent a new frontier, as large 
growth players view it as an underinvested market 
with potential for North American–level returns. 
European growth equity fundraising has increased 
by 24 percent per annum since 2016, making 
Europe the fastest-growing region for the strategy.
Secondaries fundraising
As anticipated, this year’s PE secondary fundraising 
was meaningfully lower than in 2020, a year in which 
five of the six largest secondaries firms were in 
11	Preqin.
the market at the same time, each raising more than 
$5 billion. These five funds collectively raised 
$61 billion in 2020—more than the total secondaries 
fundraising in any other year. In 2021, a similar 
number of funds were in the market, but only one 
raised more than $5 billion.11 Nonetheless, 2021 
was the third-largest fundraising year on record 
(Exhibit 11). Secondaries fundraising over the 
last five years, at $223 billion, is 71 percent higher 
than the prior five-year period, and there are 
signs that activity will rebound in 2022: at least four 
funds are currently in the market targeting raises 
of over $10 billion.
Growth equity fundraising by region of focus, billions
2003
2000
Source: Preqin
2012
2015
2018
2021
2006
2009
2016–21 
CAGR, %
2020–21 
growth, %
Total
56.6
4.2
48.1
23.6
Europe
29.3
24.6
North America
222.6
20.6
Rest of world
101.3
–15.5
Asia
140
120
100
80
40
20
60
0
Exhibit 10
Growth equity fundraising reached a new high in 2021.
18
Private markets rally to new heights

PE secondary fundraising by closing year,1 $ billion
1Excludes real estate and infrastructure secondaries.
2Funds with a close size greater than $5 billion.
Source: Preqin; McKinsey analysis 
20
2006
13
2007
10
2008
13
2010
25
2013
23
2009
5
12
2011
7
25
2018
7
22
2012
11
31
2014
10
Secondary 
funds closed, 
number
35
21
32
23
32
33
36
47
50
29
36
53
54
66
56
54
Share of 
top-5 funds 
in secondary 
fundraising, 
%
64
91
52
73
64
72
78
55
68
87
70
68
51
56
73
56
43
2021
9
31
2016
11
26
2019
11
22
2015
17
45
2017
20
84
2020
61
Others
Raised by large-cap2 
–48% 
p.a.
Exhibit 11
PE secondaries fundraising declined from 2020, but 2021 was the third-largest 
fundraising year on record. 
A deepening and maturing secondaries market 
creates opportunities for both LPs and GPs. For LPs, 
offloading existing fund positions or portfolios of 
positions is increasingly strategic and opportunistic, 
while it was once a liquidity-driven last resort. 
While the volume of LP-led secondaries continues 
to grow, most of the growth in deal making is 
driven by GPs themselves in so-called GP-led 
transactions, which represented almost two-thirds 
of deals in 2021. GP-led continuation funds allow 
GPs to realize gains while maintaining ownership of 
well-performing assets at a new basis and with 
fresh capital. The growing utilization of continuation 
vehicles is trending toward its logical extreme: 
single-asset continuation funds represented roughly 
half all GP-led secondary volume in 2021, extending 
the longer-term trend.12 
12	Hamilton Lane.
13	Jefferies.
The average winning bid priced secondaries at 
roughly 90 percent of NAV in 2021, an increase after 
three consecutive years of declines.13 Of course, the 
composition of vintage year, uncalled capital, 
asset class, quality of assets, and seller rationale is 
idiosyncratic and influences secondary pricing 
year to year. In 2021, buyout secondaries traded, on 
average, at 96 percent of NAV, while VC secondaries 
traded at 84 percent of NAV. A deeper and more 
liquid secondaries market coupled with advanced 
pricing tools deployed by market leaders should 
continue to put downward pressure on NAV 
discounts, all else equal, though all else is rarely 
equal in secondary transactions, particularly 
those of the GP-led variety.
19
Private markets rally to new heights

Despite rapid growth in the secondaries space 
in the last few years, considerable headroom may 
remain. Secondaries fundraising comprises only 
1.6 percent of PE AUM in Europe and 1.2 percent in 
North America.14 The Asian market is even less 
penetrated, with fundraising only about 0.2 percent 
of AUM. And while LPs’ limited desire to exit positions 
during benign investment environments once 
limited the addressable supply in secondaries, the 
shift toward GP-led transactions, and particularly 
single-asset continuation vehicles, increases the 
addressable market many times over. Nearly any 
PE-owned asset is now a candidate to be funded 
by a secondaries GP. 
As we noted a year ago, growth and evolution 
in the space continues to drive a war for talent in 
secondaries. Recognizing LP demand, many 
aspiring private markets firms are considering entry 
into the secondaries space, but both inorganic and 
organic entry has become increasingly challenging. 
The industry and talent pools are concentrated: 
14	Preqin. Based on average of the past three years.
40 percent of capital raised in the last five years 
went to just five firms. Almost every formerly 
independent secondary firm that reached substantial 
scale has been acquired, and most of the top ten 
secondaries funds are now affiliated with large, multi-
product institutions. There are relatively few senior 
investors with a demonstrated track record in 
leading secondaries transactions at scale; even 
fewer have orchestrated GP-led transactions. The 
competition extends beyond GPs: several highly 
regarded investment bankers serving the space have 
changed organizations in recent years. The 
secondaries market is growing quickly, and adoption 
of single-asset funds effectively takes the ceiling 
off the market. Experienced talent may be the 
restraining factor on future growth.
AUM
Global AUM increased by 38 percent between the 
second quarters of 2020 and 2021, reaching 
an all-time high of $6.3 trillion. VC was the fastest-
A deepening and maturing secondaries 
market creates opportunities for both 
LPs and GPs.
20
Private markets rally to new heights

growing strategy within PE, in terms of AUM, 
while buyout remained the largest PE sub-asset 
class (Exhibit 12). 
Growth in Asia-focused PE has been a notable 
highlight since 2018, when its AUM first surpassed 
that of Europe. Today, Asia’s AUM sits at $1.7 trillion, 
compared with Europe’s $1.1 trillion (Exhibit 13).
The approach to PE in Asia has differed from that in 
North America or Europe. Capital in Asia has 
typically been used to fund earlier-stage ventures 
with an eye to the future, rather than to structure 
well-established enterprises. Across Asia, VC and 
growth equity account for over three-quarters 
of PE AUM, compared with 34 percent in North 
America and 22 percent in Europe. Each of the two 
strategies makes up a larger share of global AUM for 
that strategy than does North America: in 2021, 
Asia-focused funds made up 45 percent of global 
AUM for VC and over half of global AUM for 
growth equity (see Exhibit 3 on page 8). Moreover, 
Asia accounts for over half of the world’s 
unicorn valuations.
Asia’s private markets mix varies based on each 
country’s underlying economy. VC and growth 
equity activity is highest in India and China. China’s 
economy is growing at double the rate of every 
other global economy, and firms see value in 
supporting the vast number of digital-native players 
to reach platform-level scale. In India, tech­nology 
Private equity assets under management by fund type globally,1 
2000–1H 2021, $ billion
2003
2000
1AUM = dry powder + unrealized value.
Source: Preqin
2012
2015
2018
1H 
2021
2006
2009
 CAGR, 
2016–
1H ’21, %
Growth, 
1H 20–
1H ’21, %
21.0
25.2
Growth
31.4
16.7
Buyout
140.4
24.8
Other
43.4
31.3
Venture capital
3,000
2,500
2,000
1,000
500
1,500
0
Exhibit 12
PE AUM reached a record high in 2021.
21
Private markets rally to new heights

Private equity assets under management by region,1 
2000–1H 2021, $ billion 
2003
2000
1AUM = dry powder + unrealized value.
Source: Preqin
2012
2015
2018
1H 
2021
2006
2009
CAGR, 
2016–
1H ’21, %
Growth, 
1H 20–
1H ’21, %
42.3
15.7
Europe
39.4
20.2
North America
32.6
13.4
Rest of world
32.9
34.5
Asia
3,500
3,000
2,500
2,000
1,000
500
1,500
0
Exhibit 13
PE AUM continued its impressive half-decade growth rate.
services proliferate, with estimates of 
$300 billion to $350 billion in annual revenues by 
2025.15 Japan and South Korea have more 
buyout deals and transactions involving large 
conglomerate restructuring.
The primary driver of PE’s AUM growth across 
regions and strategies has been the expansion in 
NAV. Between the second quarters of 2020 and 
2021, NAV growth was predominantly due to higher 
valuations on unrealized assets. An increase in dry 
powder had a smaller impact on AUM growth. 
Global inventory on hand decreased from 1.7 years 
to 1.2 years, the first decline in that metric in 
15	“Indian technology services expected to reach USD 300-350 bn in revenue by 2025,” NASSCOM, March 31, 2021, nasscom.in.
several years, which was driven by 2021’s record 
PE deal volumes (Exhibit 14).
PE NAV has grown by a factor of 14 since 2000, 
significantly outpacing the public market, which 
grew fourfold (Exhibit 15). 
Performance
The promise of outperformance continues to make 
PE attractive to investors. PE fund vintages post-
2008 have consistently outperformed other private 
markets asset classes across quartiles as well as 
equivalent investments in public markets. 
22
Private markets rally to new heights

Growth of global PE net asset value and market cap,1 
indexed to 2000 value, 2000–20, % 
Total 
market 
cap
Net asset 
value
12
10
6
2
1
3
5
7
9
11
8
4
0
1Net asset value = AUM – dry powder. Market cap is based on the total market cap of companies globally.
Source: World Federation of Exchanges; Preqin
2010
2008
2012
2014
2016
2018
2020
2006
2002
2004
2000
Exhibit 15
PE net asset value outpaced total market cap of listed companies.
Years of private equity inventory on hand,1 turns 
2010
2008
2012
2013
2014
2015
2016
2017
2018
2018
2020
2021
2011
2009
In year
4.0
3.0
1.0
2.0
0
1Capital committed but not deployed, divided by equity deal volume. Equity deal volume estimated using transaction volume and leverage ﬁgures.
Source: PitchBook; Preqin
Exhibit 14
Global inventories of PE buyout and growth dry powder decreased in 2021.
23
Private markets rally to new heights

PE returned a 27.1 percent pooled IRR in the 
first three quarters of 2021, slightly below the 
33 percent in full-year 2020.16 Once again, PE 
outperformed other private markets asset classes 
even as the spread between them narrowed 
in 2021 due to a rebound across the board. PE’s 
outperformance extends across fund quartiles. 
The top-quartile PE funds have returned 30.5 percent 
net IRR since inception,17 far ahead of the second-
best-performing private asset class, real estate, at 
16 percent. Indeed, PE’s median net IRR to date 
of 19.5 percent is above the top quartile for all other 
private markets asset classes. 
Additionally, PE continues to outperform its 
public markets equivalents. A Kaplan-Schoar PME 
analysis, which benchmarks PE performance 
against a public market index by accounting for the 
timing of cash flows, indicates that the median 
16	Burgiss. Pooled IRR calculation takes all cash flows across PE vintage years and aggregates them to identify the rate of return as if all flows 
were in one fund.
17	Vintages 2008–18.
18	Burgiss. Global PE funds versus MSCI World Total Return index.
PE fund, in 2008–18 vintages, has outperformed 
the public market equivalent by an average 
of 1.17 times, on average. Only the median fund 
of the 2008 vintage failed to outperform 
public markets.18 
Within PE, VC returns are the highest across 
quartiles, without a corresponding increase 
in downside risk. VC was the top-performing sub-
asset class, on a pooled net IRR basis, in eight 
out of the ten most recent vintages with significant 
performance data (Exhibit 16). The strategy is 
often viewed as the most volatile of PE strategies, 
as reflected by its larger interquartile spread. 
However, its returns beat those of the other PE 
strategies in every quartile (Exhibit 17). Growth 
has the lowest dispersion between top- and 
bottom-performing funds, but also the lowest 
top-quartile returns. 
PE fund vintages post-2008 have 
consistently outperformed other 
private markets asset classes as well 
as equivalent investments in 
public markets.
24
Private markets rally to new heights

Private market strategy performance comparison by vintage year, 
pooled net IRR since inception, 2009–18, %
Source: Burgiss
2010
21.78
14.13
11.08
6.63
6.57
2009
19.87
19.64
13.94
13.63
5.38
2012
27.03
17.62
15.46
11.61
9.39
2011
25.25
15.69
15.23
15.18
7.30
2013
25.19
16.93
15.90
10.35
8.30
2014
27.23
21.53
20.95
12.55
10.55
2016
40.47
21.34
19.14
16.50
9.82
2015
30.00
22.88
20.96
18.09
11.42
2017
39.60
38.43
27.98
20.48
10.12
2018
40.50
40.38
26.68
17.30
11.55
10-year 
IRR
24.07
17.10
13.91
13.66
9.55
Capitalization, 
$ billion
Funds, number
229.5
163
Secondary
63.3
107
Growth-expansion
324.1
188
Infrastructure
373.0
1,277
Venture capital
1,624.4
1,196
Buyout
Exhibit 16
Venture capital has outperformed other PE sub-asset classes in eight out of 
the last ten vintage years.
Global PE fund performance by strategy, net IRR to date through Sept 30, 2021, 
2008–18 vintages, %
Note: Figures may not sum precisely, because of rounding.
1Methodology: IRR spreads calculated for funds within vintage years separately and then averaged out. Median IRR was calculated by taking the average of the 
median IRR for funds within each vintage year.
Source: Burgiss
Venture capital
37.1
23.8
12.0
Growth
21.7
13.1
7.6
25.1
14.1
Buyout
25.7
18.0
10.5
15.2
Top 25%
Bottom 25%
Median
Exhibit 17
Venture capital returns are better across quartiles, despite a more 
volatile risk proﬁle.
25
Private markets rally to new heights

Global private equity deal volume,1 
$ billion 
Global private equity deal count,1 
number of deals, thousands
2000
1Includes PE buyout/LBO (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition, management buyout, 
management buy-in, privatization, recapitalization, public-to-private, secondary buyout); PE growth/expansion (recapitalization, dividend recapitalization, and 
leveraged recapitalization); platform creation.
Source: PitchBook
2014
2021
2007
Europe
North America
Total
2,200
2,000
1,800
1,600
1,000
1,200
600
800
200
400
1,400
0
2000
2014
2021
2007
15
12
9
3
6
0
Exhibit 18
PE buyout and growth equity deal volume and deal count in 2021 reached 
$2.04 trillion across 14,686 deals.
Deal activity 
PE deal activity rebounded strongly in 2021 as 
investor optimism was buoyed by a sharp economic 
recovery, in part brought about by central-bank-
sanctioned capital infusions across major economies. 
Deal volume was up 48.6 percent to reach 
$2.04 trillion globally, and the number of deals 
exceeded 14,000 for the first time (Exhibit 18). 
This surge in deal activity provided a major boost for 
PE, which recorded an 8.2 percent decline in deal 
volume in 2020, due primarily to the pandemic.
Deal volume increased across regions, with North 
America leading with $1.1 trillion, a 50 percent 
increase from 25 percent more deals. Europe had 
nearly as large an increase, reaching $720 billion in 
nearly a third more deals than 2020.
Globally, deal volume has now increased by nearly 
three times since 2012 and one and one-half times 
since 2017. With fundraising near record levels 
and dry powder continuing to grow (17.5 percent 
annualized growth since 2016), investors are 
deploying capital at historic rates.
26
Private markets rally to new heights

Most of this activity has taken place in B2B, 
B2C, and IT, which in total accounted for 
approximately two-thirds of global deal volume last 
year (Exhibit 19).19 B2B and B2C have lost some 
share of global deal volume relative to ten years ago, 
while IT has expanded from 11 percent in 2011 
to 20 percent in 2021. Healthcare is another rapidly 
expanding sector, with the fastest deal-volume 
growth globally since 2016. 
19	Deal volumes by sector are calculated on a trailing three-year basis to smooth the impact of year-to-year volatility.
PE firms further accelerated activity in IT and 
health­care throughout the pandemic. The represen­
tation of these industries among 2021’s largest 
deals underscores this activity: of the largest ten 
deals, four were in IT, three were health­care, 
and the largest deal last year involved a manufacturer 
and distributor of healthcare supplies. 
Note: Figures may not sum precisely, because of rounding.
1Includes PE buyout/LBO (add-on, asset acquisition, carve-out, corporate divestiture, debt conversion, distressed acquisition, management buyout, 
management buy-in, privatization, recapitalization, public-to-private, secondary buyout); PE growth/expansion (recapitalization, dividend recapitalization, and 
leveraged recapitalization); platform creation.
Source: PitchBook 
Global PE deal volume by sector, trailing 3 years,1 $ billion
2015
9%
5%
3,032
28%
12%
14%
21%
11%
2018
10%
4%
4,054
32%
10%
18%
19%
8%
2012
5%
2,041
29%
11%
11%
23%
9%
12%
2021
4%
4,915
29%
7%
20%
18%
9%
13%
2016–21 
CAGR, %
2020–21 
growth, %
Total
11.4
8.0
9.6
8.0
Business products and services (B2B)
11.7
6.0
Consumer products and services (B2C)
17.0
13.3
Information technology
8.3
3.1
Materials and resources
–5.6
–1.9
Energy
10.1
6.5
Financial services
19.5
14.3
Healthcare
Exhibit 19
Healthcare and IT have been the fastest-growing sectors globally in 
the last ﬁve years.
27
Private markets rally to new heights

Conversely, deal activity in traditional energy 
investments continued to decline, perpetuating a 
four-year downward trend that correlates with LPs’ 
increasing ESG commitments.
Deal multiples and leverage 
For most of the decade ended 2020, both US PE 
and public markets multiples expanded steadily, 
with valuation growth in the private markets slightly 
outpacing that in public markets. From 2010 to 
2020, the average median entry multiple in US 
buyout, for example, increased from 9.0 to 13.1 times 
earnings before interest, taxes, depreciation, and 
amortization (EBITDA). This meant that an investor in 
2020 paid over 30 percent more to acquire the same 
EBITDA as they would have a decade prior. 
In 2021, however, buyout multiples compressed 
slightly, even as public multiples surged (Exhibit 20). 
This trend may be partially attributable to a mix shift 
in deal activity in 2020 and 2021. Activity in 2020 
Median US multiples, buyout entry multiples and 
small-cap equities, median, 2008–21 
2010
2008
2009
Source: Reﬁnitiv, S&P Capital IQ
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
10.010.0
10.1
12.9
10.3
12.8
10.6
11.0
10.8
12.6
13.5
13.9
12.912.5
13.1
12.7
12.8
16.5
9.0
10.1
9.1
10.0
9.29.7
9.3
11.6
8.6
9.4
Russell 2000, 
EV/EBITDA
US buyout, purchase 
price/EBITDA
18x
16x
10x
12x
6x
8x
2x
4x
14x
0x
Exhibit 20
US buyout multiple growth has leveled off.
28
Private markets rally to new heights

was concentrated in higher-multiple sectors, such 
as technology, that were relatively unaffected by 
(and, in many cases, benefited from) the pandemic. 
In 2021, conversely, there was a backlog of 
deals completed in lower-multiple sectors, such as 
manufacturing, which sellers had been reluctant to 
exit at trough valuations a year earlier. 
Debt remained cheap in 2021, and GPs continued to 
take advantage of it. While leverage did not rise 
further, it remained elevated at roughly seven times 
EBITDA (Exhibit 21). US buyout firms continue to 
utilize debt for approximately 55 percent of a deal’s 
purchase price, on average. 
US leverage metrics, 2008–21
2010
2008
2009
Source: Reﬁnitiv
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Debt/EBITDA 
12x
6x
8x
2x
4x
10x
0x
70
40
50
20
10
30
60
0
Debt/capitalization, % 
4.8
4.2
4.9
5.0
5.5
5.9
6.1
5.9
5.9
6.2
6.5
6.6
6.9
6.9
Exhibit 21
US buyout leverage remained at nearly seven times in 2021.
29
Private markets rally to new heights

Brick by brick, private real estate rebounded 
after a sharp decline in fundraising, deal 
making, and valuations in 2020. During the 
first and second waves of the pandemic, 
uncertainty about where and how we will 
live, work, and shop in a postpandemic 
world slowed activity. 
With a semblance of clarity in 2021, investors 
returned to the asset class and activity 
accelerated. Real estate deal volume and 
AUM reached new heights in 2021, buoyed 
by the second-highest-ever fundraising 
year. Opportunistic and value-add 
fundraising grew sharply in North America 
as investors rotated capital toward higher-
risk strategies, perhaps hoping to take 
advantage of dislocation and distress that 
did not materialize at the scale that many 
market participants anticipated in the early 
days of the pandemic. Open-end core and 
core-plus funds, despite solid perfor­mance 
in 2021, experienced net outflows that 
reversed a long-term trend.
3
Real estate rebuilds 
30
Private markets rally to new heights

Closed-end funds globally returned 12.2 percent 
in the first three quarters of 2021, a welcome 
rebound for investors after a loss of 0.1 percent in 
2020. Scale continues to create performance 
advantages for real estate investors: the largest 
funds out­performed smaller counterparts. 
However, we did not see evidence of investors 
flocking to the largest managers during 
the pandemic. 
In the US, the largest real estate market, 
COVID-19 sparked fears of urban flight, but 
it happened less than some anticipated. 
Hybrid rather than fully remote work seems to be 
the majority position, which will likely keep 
employees living within commutable ranges. 
Omnichannel retail—a trend long in the 
making—has now fully taken hold. Multifamily 
and industrial continue booming. Office and 
retail aren’t dead, though much work remains to 
reimagine working models and spaces for the 
postpandemic experience.
20	 Preqin.
Closed-end funds
Fundraising
Rebounding from a three-year low the year before, 
fundraising in closed-end real estate vehicles 
rose 17.7 percent year over year to $175 billion, the 
second-highest year on record and close to 
the all-time high of $199 billion in 2019.20 North 
American funds and opportunistic strategies 
drove the rebound. 
Fundraising results differed meaningfully across 
regions, however. North America was up 
48.0 percent year over year to $120 billion, almost 
reaching the prepandemic high. Asia rebounded 
to $20 billion after two consecutive years of decline, 
a 4.8 percent increase year over year (though well 
below the 2018 high). Closed-end fundraising in 
Europe fell by nearly a third to $28 billion, the lowest 
since 2012 and a precipitous 51.6 percent decline 
relative to the high-water mark of $58 billion 
reached in 2017. Fundraising in the region has now 
fallen three times in the last four years. 
Fundraising shifted to riskier strategies 
in 2021, driven in part by anticipation 
of distress—an expectation that did not 
fully materialize.
31
Private markets rally to new heights

Fundraising shifted to riskier strategies in 
2021, driven in part by anticipation of distress—
an expectation that did not fully materialize. 
Opportunistic fundraising grew 56.8 percent year 
over year after a substantial decline in 2020 
(Exhibit 22). The global haul was driven by North 
American opportunistic fundraising, up 177.3 percent 
from last year. In Europe, conversely, opportunistic 
fundraising fell 80.7 percent. It bears noting that 
year-to-year opportunistic fundraising is inherently 
volatile, given the idiosyncrasy of the largest 
players’ vintage timing; globally, there has been a 
direction change in growth every year since 2018. 
Hitting a new high of $53 billion, value-add 
fundraising grew for a second consecutive year and 
for the tenth time in the last 11 years (a remarkably 
consistent trend). Debt fundraising grew after three 
consecutive years of decline. On the other hand, 
closed-end core and core-plus fundraising, 
comprising a minority of dollars at work in core (more 
below on open-end fundraising), declined. 
Recent inflation and investors’ fear of continued 
inflation could provide a new tailwind for real estate 
fundraising, or at least a different reason for 
allocating to the asset class. In recent years, LPs 
have sometimes thought of real estate as a 
fixed-income-like asset class with stable cash flows 
and higher yields than traditional fixed-income 
instruments. But if the recent surge in prices 
persists, real estate may well shift back to playing 
Global closed-end real estate fundraising by asset subclass,1 
$ billions
2020
2021
2017
2018
2019
2016
2013
2014
2015
2012
2011
2010
2016–21 
CAGR, %
2020–21 
growth, %
Note: Figures may not sum precisely, because of rounding.
1Secondaries and funds of funds are excluded to avoid double counting of capital fundraised.
2Includes real estate distressed.
3Includes real estate core, core plus.
Source: Preqin
Total
17.7
3.3
12.3
5.9
Debt
12.0
6.6
Value added
56.8
1.0
Opportunistic2
–15.3
4.5
Core, core plus3 
68
86
96
132
148
161
145
166
168
199
176
149
12
16
30
34
38
39
44
52
42
48
54
22
29
39
47
58
52
72
59
45
55
92
39
62
7
14
10
23
33
22
24
47
39
29
28
32
20
18
17
20
28
28
23
31
23
36
34
29
+18% 
p.a.
Exhibit 22
Closed-end real estate fundraising rebounded in 2021, with opportunistic funds 
growing fastest.
32
Private markets rally to new heights

the inflation hedging role it once did in investors’ 
portfolios prior to the GFC. Research suggests that 
as a hedge against inflation, real estate has 
performed as well as, or better than, other inflation-
sensitive assets such as Treasury inflation-
protected securities (TIPS) or gold.21 
Returns
Returns in global closed-end real estate funds 
rebounded across regions after an underwhelming 
performance in 2020. Pooled net IRR for real 
estate funds in the first three quarters of 2021 stood 
at 12.2 percent, the best performance since 2016 
and a marked improvement on the 0.1 percent return 
in 2020.22
In the longer term, real estate has provided 
remarkably consistent returns for investors. Every 
vintage from 2009 to 2018 has produced a pooled 
net IRR since inception between 9.3 percent 
and 13.0 percent. The median net IRR to date for 
real estate funds stands at 10.7 percent, higher than 
all other private asset classes except PE. 
Open-end funds
For open-end real estate funds, the big-picture 
story in 2021 is one of growth, albeit with larger-
than-typical outflows in a year in which investors 
showed increased appetite for risk. 
Total NAV of the funds included in the National 
Council of Real Estate Investment Fiduciaries Open-
End Equity (NFI-OE) Index—which tracks the 
majority of scaled core and core-plus vehicles in the 
US—reached $312 billion as of September 30, 2021, 
up 16.8 percent from $267 billion the year prior.23 
Fund performance improved in 2021, with NFI-OE 
funds returning 17.2 percent on a gross basis 
in the trailing 12 months through September 2021, 
compared with 2.3 percent over the prior 
12-month period. 
21	For real estate as an inflation hedge, see Brad Case and Susan M. Wachter, “Inflation and real estate investments,” working paper 716, The 
Wharton School, University of Pennsylvania.
22	 Burgiss.
23	 National Council of Real Estate Investment Fiduciaries Open-End Equity (NFI-OE).
24	 FTSE Nareit All Equity REITs (FNER) index, Nareit.
25	 As of the 12 months ending June 30, 2021. Preqin.
Interestingly, public real estate investment trust 
(REIT) returns improved even more: the Nareit All 
Equity REITs index returned 31.5 percent in the 
same period.24 Yet, taking 2019 as a base, public 
REITs have produced slightly lower two-year 
returns, as strong returns in 2021 did not fully make 
up for a 5.1 percent decline in 2020. The variance 
is a reminder of public-market volatility; as we noted 
in our report last year, public markets occasionally 
disconnect trading marks from NAV. 
Despite solid performance in open-end funds 
in 2021, distributions and redemptions exceeded 
inflows, a phenomenon that began with the 
pandemic’s onset. Gross contributions to open-end 
funds increased 13.1 percent in the trailing 12 months 
through September 2021. However, distributions 
and redemptions increased 34.5 percent, resulting 
in a net outflow of $3.5 billion (or 1.3 percent 
of starting NAV). A long-term trend has reversed: 
contributions to US core and core-plus vehicles 
had exceeded distributions and redemptions in 
every year from 2010 to 2019 and through the first 
quarter of 2020. Whether this departure from 
the long-term trend reflects a shift to opportunistic 
vehicles or simply tactical allocations by limited 
partners taking advantage of dislocation is a question 
GP strategy teams will follow closely.
AUM
Total global real estate AUM in closed-end funds 
grew to a new record high of $1.2 trillion.25 The 
14.7 percent year-over-year increase was primarily 
driven by higher-risk strategies, though with some 
regional variation. 
AUM grew fastest in North America, increasing 
15.4 percent, outpacing the annualized average 
since 2016 by nearly five percentage points. Higher 
NAV, which increased by $90 billion, accounted for 
over 90 percent of AUM growth in the region. In 
33
Private markets rally to new heights

Asia, AUM growth similarly outpaced the historical 
rate, rising 13 percent. Unlike in North America, 
core funds were responsible for the largest share 
of growth. By contrast, AUM growth in Europe 
slowed to 10.8 percent due to lackluster fundraising, 
down 2.5 percentage points from the annualized 
average since 2016. 
Limited consolidation but 
benefits of scale
As with seemingly every downturn, investors 
expected there would be a “flight to quality” (however 
ambiguous that concept may be) when the pandemic 
spiked uncertainty. If that flight happened, it’s highly 
nuanced in the fundraising data, presuming its 
expression in real estate refers to some combination 
of managers with a well-established brand and 
track record or highly occupied trophy assets. What 
actually occurred was that money flowing to the 
ten largest fundraisers fell to a ten-year low 
(Exhibit 23). Dollars going to the top five fell even 
more sharply. Oft-discussed predictions of 
consolidation within the asset class are not playing 
out at the top—or haven’t yet. Admittedly, this 
analysis ignores open-end institutional capital 
vehicles and private REITs, where a few managers in 
the top ten have raised large pools. 
Moreover, investors shifted allocations from core and 
core-plus vehicles—the traditional homes of fully 
leased class A properties—to opportunistic vehicles, 
many of which seek to buy underperforming assets. 
However, while it is difficult to find evidence of 
a flight to quality among investment dollars to date, 
high-quality spaces and experiences are even 
more important to tenants today (such as helping 
office occupiers compete for talent).
While the predicted flight of capital may not have 
come to pass and there is little evidence of growing 
concentration at the very top of the industry, 
widespread consolidation may be under way. The 
number of closed-end funds raised each year 
grew continuously from a GFC-driven trough in 
2009 to a peak of 605 funds in 2018, but the total 
has declined in each of the last three years. In 
2021, just 366 funds closed, the lowest such total 
Fundraising by manager size, trailing 5 years, %
Source: Preqin
Top 5
Top 6–10
Top 11–25
Top 26–100
Top 101–250
Top 251+
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
17
7
14
26
20
16
17
7
13
25
20
17
19
7
13
24
20
17
20
7
12
24
19
17
19
7
11
25
19
18
18
7
12
26
19
18
16
6
12
27
19
20
18
6
11
27
19
19
17
6
12
27
19
19
15
7
13
29
19
18
Exhibit 23
In closed-end RE, fundraising by top firms declined further.
34
Private markets rally to new heights

in a decade, and the number of new managers to 
enter the space was the lowest since 2015 (after all, 
it’s difficult to launch a firm during a pandemic). 
At the same time, average fund size has grown to 
$587 million, a 15-year high. In total, smaller 
funds’ (less than $500 million) share of fundraising 
has more than halved since 2016, while the 
share of funds greater than $1 billion increased from 
39.5 percent to 61.1 percent in the same period. 
Fewer and larger funds may be good news for 
investors, because in real estate, scale matters and 
the largest players outperform. Further, the gap 
between first-quartile funds and fourth-quartile 
funds in the largest funds is relatively narrow, 
suggesting lower risk in manager selection 
(Exhibit 24). The advantages of scale are easy to 
understand and may be exacerbated in future 
years: large real estate players use their scale to 
attract talent, acquire complex portfolios, tie 
up operators in systematic joint ventures (or buy 
operating companies wholesale), and invest in 
digital infrastructure that creates efficiency and 
insight. Scale may be among the most 
sustainable advantages in the asset class, and 
recent trends seem likely to continue if return 
patterns persist. 
16.1
14.7
12.5
16.0
10.4
4.8
15.9
11.3
7.6
Global real estate fund median IRR and percentile spreads by fund size, 
net IRR to date through Sept 30, 2021
1Methodology: IRR spreads calculated for funds within vintage years separately and then averaged out. Median IRR was calculated by taking the average of the 
median IRR for funds within each vintage year.
Source: Burgiss 
Top 25%
Bottom 25%
Median
2008–18 vintage year
>$5 billion
$1–5 billion
<$1 billion
>$5 billion
$1–5 billion
<$1 billion
2014–18 vintage year
18.4
15.6
12.5
17.0
11.3
7.8
16.5
10.2
4.6
3.6
8.3
11.2
5.9
11.9
9.2
Exhibit 24
Outperformance of large real estate funds has increased in recent vintages.
35
Private markets rally to new heights

Deal volume 
Global real estate deal volume reached an all-time 
high of over $1.3 trillion in 2021, after a dramatic slow-
down in 2020, when markets effectively stopped 
transacting in the second quarter (Exhibit 25). The 
fourth quarter in 2021, when $498 billion of 
real estate changed hands, was the most active on 
record.26 Deal volume was highest in the Americas, 
a record of $775 billion, largely due to activity 
within the US. 
26	 CBRE, RCA.
Deal activity in Asia–Pacific rebounded by 
30.6 percent in 2021, to reach $143 billion. Combined 
deal volume in Tokyo and Seoul contributed nearly 
half of the region’s total volume. 
Reversing a two-year decline, real estate deal 
volume in EMEA grew by 27.7 percent in 2021, with a 
third of total yearly transaction value occurring 
in the last quarter.
Global real estate deal volume,1 $ billion
1,400
1,200
1,000
800
600
400
200
2010
2020
2016
2018
2014
2012
0
2016–21 
CAGR, %
2020–21 
CAGR, %
Total
55.2
7.1
83.1
8.4
Americas
27.7
6.1
EMEA
30.6
4.2
APAC
1Excludes residential.
Source: CBRE; RCA
Exhibit 25
In 2021, deal volume rebounded in all regions, with Americas leading the pack.
36
Private markets rally to new heights

Deal activity asset class variation
Globally, deal activity increased across asset 
classes and reached record-breaking totals in both 
multifamily and industrial, which contributed 
more than half of total transaction value (Exhibit 26). 
Growth within these two sectors spiked by 
82.8 percent within multifamily and 53.8 percent 
within industrials, as pandemic-driven tailwinds 
became apparent to investors. Industrial deal 
volume grew for the fifth consecutive year, a trend 
driven by the longer-term shift toward 
omnichannel retail.
Global real estate deal volume, $ billion
Source: CBRE
Ofﬁce
Retail
Industrial
Multifamily
Hotel
Other
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
2011
2010
337
140
279
432
70
84
1,342
265
865
101
182
236
31
50
1,113
375
143
181
268
83
63
1,115
372
176
167
253
87
60
1,009
352
167
146
214
69
61
951
341
171
108
210
71
49
1,036
343
200
124
211
90
67
906
328
189
103
154
67
66
771
277
164
90
140
58
42
613
217
136
65
119
41
36
555
192
129
65
80
40
49
408
158
97
44
49
33
27
Exhibit 26
Global deal volume increased in every real estate sector, rebounding from 
widespread pandemic lows.
37
Private markets rally to new heights

US markets by asset class
In the United States, multifamily deal volume 
increased 91.3 percent in 2021 (Exhibit 27), 
reversing a significant decline in 2020. Acquisition 
activity drove deal volume growth; new development 
has remained consistent at around 4 percent of 
all US multifamily inventory in each year.
Deal volume in US industrial real estate increased 
51.1 percent after a resilient 2020, due to reliance on 
supply-chain operations for e-commerce. However, 
unlike multifamily, activity in the industrial sector 
was focused on development.27 New warehouses 
and distribution centers are required for the 
transition to omnichannel retail, and growth in square 
feet under construction outpaced growth of 
inventory. Net absorption was exceptionally strong, 
increasing 81 percent year over year, with 406 million 
27	 CoStar.
28	 JLL.
29	 CoStar.
30	 Sarah Kern, “Retail foot traffic rises above pre-COVID levels,” JLL, December 6, 2021.
31	 CoStar.
square feet absorbed in 2021. Vacancy rates 
dropped below 4 percent for the first time ever, even 
as rents increased 11.3 percent year over year.28
The US retail sector showed strong signs of 
recovery: deal volume in 2021 reached a record high 
of $78 billion, representing 50.0 percent growth 
over 2020.29 A combination of pent-up demand and 
stimulus money drove consumers to shop, and 
retail foot traffic at the end of 2021 exceeded pre-
COVID-19 levels (suburban open-air properties 
benefited the most, while urban malls have 
continued to struggle in terms of footfall).30 The 
retail recovery was reflected in demand for space: 
asking rents rose 3.0 percent year over year, net 
absorption increased to 106 million square feet, and 
vacancy rates neared prepandemic levels of 
4.6 percent by the fourth quarter of 2021.31 
US real estate deal volume, $ billion
Source: CoStar
Ofﬁce
Retail
Multifamily
Industrial
Hospitality
2013
2014
2015
2016
2017
2018
2019
2020
2021
2012
97
78
226
105
69
52
118
69
40
546
117
68
164
69
37
455
323
14
104
63
148
66
40
421
102
59
133
57
27
378
112
68
136
49
365
119
73
128
49
369
104
64
95
40
304
90
51
81
33
255
67
44
68
28
207
Exhibit 27
US deal volume reached an all-time high in 2021.
38
Private markets rally to new heights

US office sector deal volume rebounded off a 2020 
low but was the second lowest on record since 
2014. Older office buildings, which may not meet the 
needs of today’s hybrid workforces, have suffered: 
JLL reports office properties built in 2014 or before 
had a collective negative 199 million square feet 
of absorption, while absorption of office properties 
in the United States built after 2014 totaled a positive 
51 million square feet over the seven quarters 
ending December 31, 2021. 
Spotlight on US multifamily
Performance of US multifamily real estate was 
impressive in 2021: yearly deal volume grew 
91.5 percent (a ten-year high), and cap rates fell to 
5.2 percent (the lowest since at least 2000).32 
Moreover, rents rose 13.5 percent last year, the 
equivalent of $190 a month.33 That may be good for 
owners and investors, but housing affordability 
continues to be a challenge, and many anticipate 
that rents will continue rising due to a disconnect 
between supply and demand. Along with higher rents, 
the median sales price of existing single-family 
homes rose 15.8 percent, to $358,000, from 
December 2020 to December 2021.34 With home 
price increases outpacing income growth 
32	 Ibid. 
33	 Yardi Matrix.
34	 National Association of Realtors.
35	 The state of the nation’s housing 2021, Joint Center for Housing Studies of Harvard University, 2021. 
36	 Green Street and Yardi Matrix.
nationwide, the price-to-income ratio has reached 
a 15-year high of 4.4.35 In fact, half of renters 
and a fifth of owners spent more than 30 percent 
of income on housing as of 2019; recent price 
dynamics have only exacerbated this problem. 
Rent increases were most substantial in the Sunbelt 
states.36 To a large extent, these reflect pre-
COVID-19 trends of population growth in Sunbelt 
states, driven by employers shifting head count 
to inland metropolitan statistical areas with lower 
cost of living and boomers heading south and 
southwest for warmer climates. For example, no 
large city grew faster than Phoenix between 
2010 and 2020, and the Villages, a retirement com­
munity in Florida, was the fastest-growing metro 
area in the United States over the same time period. 
The pandemic has modestly accelerated some of 
these trends, but it has not led to the universal 
demise of urban cores. These areas remain magnets 
for highly educated talent and therefore remain 
attractive for the country’s largest and most 
innovative employers. Within urban cores, there are 
a variety of drivers that influence net population 
shifts. New York City, for example, added 629,000 
people over the decade, defying predictions 
The pandemic has not led to the 
universal demise of urban cores. These 
areas remain magnets for highly 
educated talent and therefore remain 
attractive for the country’s largest and 
most innovative employers.
39
Private markets rally to new heights

that affordability-driven outmigration and pandemic 
exodus would swamp inflows.37 By September 2021, 
rent in New York City had climbed (and remains) 
above prepandemic levels.38 San Francisco, on the 
other hand, is more exposed to dynamics that 
present headwinds for urban cores in the post­
pandemic economy, including tech roles that can be 
performed remotely, limited mass transit, and 
a reverse commute for much of its highly educated 
workforce. San Francisco’s rents, as a result, 
remain well below prepandemic levels. 
37	 US Census Bureau.
38	 Zumper.
Spotlight on US property technology
Growing excitement for property technology 
(proptech) accelerated deal volume massively in 
2021. VC and PE firms invested $32 billion in 
the sector, more than the combined total of the prior 
two years (Exhibit 28). 
As companies within the industry mature, more 
capital is being deployed at later stages. PE firms 
are entering the space through both growth 
equity and leveraged buyouts. Although more than 
US real estate technology deal volume 2010–211
$ billion 
Number of deals 
35
30
25
20
10
15
5
0
600
500
400
300
100
200
0
20211
12
20
32
2020
5
9
14
2019
9
5
14
2018
7
1
8
2017
4
2
6
2015
2
3
5
2016
2
2
2014
2
2013
1
2011
1
2012
<1
2010
<1
1Includes management buyout, management buy-in, add-on, secondary buyout, public to private, growth/expansion, PIPE.
Source: PitchBook, as of Nov 2021
Total number of deals
Venture capital
Private equity1
Exhibit 28
Real estate tech deal volume reached an all-time high in 2021 for both 
PE and VC investors
40
Private markets rally to new heights

80 percent of this growth in 2021 was driven 
by two large acquisitions, there are signs that large 
acquisitions could continue.39 The number of PE 
firms assessing opportunities or thinking about 
proptech within their software or business-services 
verticals has expanded rapidly in recent years, 
suggesting a ready capital base for growth-stage 
and established companies alike. With an influx of 
new capital, proptech incumbents and early 
movers are growing rapidly through acquisitions 
of competitors and adjacent businesses.
Exits are also promising. While in the last decade IPO 
deal volume for proptechs never surpassed $2 billion, 
IPOs in the last two years surpassed $19 billion. 
In particular, proptech has been a popular target for 
SPACs (or special-purpose acquisition companies), 
which accounted for roughly 40 percent of IPO deal 
volume in 2020.
Investor excitement coincides with rapid technology 
adoption among real estate owners and operators. 
Several key trends support further demand:
39	 PitchBook.
	
— Commercial real estate owners and operators 
are embedding technology throughout 
their operations in order to manage day-to-day 
workflows, market properties, search for deals, 
and collect rent payments.
	
— Tenants and end users are demanding digital 
experiences to search for properties, sign 
leases, and interact with management.
	
— Investors and operators are announcing ESG 
commitments and sustainability missions, 
which are likely to spur adoption of clean and 
green tech within properties (for example, 
climate analytics to understand the best sources 
of value in making brown-to-green transitions 
or to correctly value a property in light 
of climate risk). 
	
— Technology is enabling new ways of transacting 
(for example, the rise of iBuying, fractional 
purchases, and flexible residential leases).
41
Private markets rally to new heights

Private debt set another fundraising record 
in 2021, marking its tenth consecutive 
year of growth (Exhibit 29). The asset class 
had no trough from which to rebound 
in 2021: it is the only private markets asset 
class to have grown fundraising in 2020. 
Whereas PE fundraising declined by nearly 
20 percent, private debt fundraising grew 
by about 20 percent from 2019 to 2020.40 
Debt’s performance throughout the 
pandemic is perhaps to be expected, as 
debt securities are senior in the capital 
stack to equity and therefore less 
40	 Fundraising data at the time of publication of our 2020 report did not reflect this increase. At the time, available data 
suggested a year-over-year decline in private debt fundraising of approximately 7 percent.
susceptible to moderate changes in the 
valuation environment. That reality has 
played out in the asset class’s return profile: 
performance of private debt funds shows 
the tightest distribution of any private asset 
class by a factor of at least two.
The diversity of strategies within private 
debt also helps explain its consistent growth. 
Some, such as distressed and special 
situations strategies, have countercyclical 
qualities, while others, such as direct 
lending, are more expansionary. 
4
Private debt extends again 
42
Private markets rally to new heights

Viewed through this lens, 2021 was a year in 
which private debt investors rotated to 
more growth-oriented investment strategies. 
Fundraising for direct lending surged by 
65 percent, resuming its rapid prepandemic 
growth trajectory. Every other substrategy 
declined in 2021, though not dramatically so. 
Distressed fundraising remained near 
historical highs, suggesting that some investors 
may be skeptical that the economy has fully 
regained its footing. 
Across substrategies, private debt managers 
are seeking to differentiate themselves through 
increased scale and capital flexibility. More 
private debt megafunds were raised in the last 
two years than ever before, and it is becoming 
increasingly difficult to classify funds along 
traditional substrategy lines. Scale and flexibility 
enhance a lender’s ability to offer prospective 
41	CEM Benchmarking.
borrowers an array of customized financing 
“solutions,” rather than prepackaged debt 
“products.” In so doing, leading lenders 
are able to deepen their relationships with 
borrowers, structure investments with 
unique risk/return parameters, and increase 
the rate at which they deploy capital.
Fundraising
Fundraising in 2021 totaled $192 billion across all 
private debt strategies, 10.4 percent more than 
in 2020 and nearly five times the amount raised a 
decade ago. On the demand side, fundraising 
growth continues to be driven by growing LP 
allocations, which have doubled since 2016.41 Given 
the growing prominence of the asset class, 
many LPs are contemplating carving out private 
debt as a separate allocation category, if they 
haven’t already done so. 
Global private debt fundraising by substrategy,1 $ billion 
2011
2020
2021
2018
2017
2019
2016
2014
2015
2012
2013
2016–21 
CAGR, %
1Excludes secondaries, funds of funds, and co-investment vehicles to avoid double counting of capital fundraised.
Source: Preqin
2010
44
43
71
78
78
110
132
132
135
144
174
192
2020–21 
growth, %
22.6
Direct 
lending
65.0
2.0
Total
10.5
3.0
Special 
situations
–7.3
2.2
Distressed 
debt
–16.6
–16.8
Mezzanine
–56.4
4.1
Venture 
debt
40.3
+10% 
p.a.
Exhibit 29
Private debt fundraising continues to climb.
43
Private markets rally to new heights

On the supply side, recent fundraising is character­
ized by more megafunds: five funds of $10 billion 
or more were raised in the last two years, compared 
with just one such fund in the previous decade. 
Vehicles of $1 billion or more now have an 80 percent 
share of fundraising, 20 percentage points 
higher than just five years ago. The top end of the 
market has grown faster than the tail end as 
the market becomes more consolidated: the top ten 
private debt funds accounted for 40 percent of 
total fundraising in 2021, up from 27 percent five 
years ago.
Fundraising totals reported here likely understate 
total industry growth, moreover, as they do not 
capture substantial private debt capital in business 
development corporations (BDCs) or managed as 
part of insurance capital pools. BDCs, which are 
often used by retail investors to access private debt, 
held an estimated $180 billion AUM in the third 
quarter of 2021, an increase of nearly $50 billion 
over 2020.42 Many of the largest BDCs are managed 
by the same private markets GPs that appear in 
reported fundraising totals. Insurance permanent 
capital, likewise, now accounts for hundreds of 
billions in AUM for private markets GPs, a substantial 
portion of which is deployed into private loans.43 
42	 Refinitiv.
43	 Ramnath Balasubramanian, Alex D’Amico, Rajiv Dattani, and Diego Mattone, “Why private equity sees life and annuities as an enticing form of 
permanent capital,” McKinsey, February 2, 2022.
44	 Preqin.
Private debt fundraising is heavily concentrated 
in North America and Europe, which accounted for 
64 and 30 percent, respectively, of the 2021 total. 
Fundraising in both regions increased in 2021 
by approximately 11 percent. Private debt remains 
less penetrated in Asia and the rest of the 
world, which account for less than 10 percent 
of global fundraising collectively.
Direct lending
Direct lenders make loans to companies without the 
use of a financial intermediary such as a bank. 
These loans can take many forms, but they are often 
senior secured, floating-rate securities that are 
closely held (and therefore relatively illiquid). Middle-
market companies, particularly those owned by PE 
sponsors, are the most common borrowers. 
Direct lending accounted for nearly 60 percent of 
overall private debt fundraising in 2021, exceeding 
$100 billion for the first time.44 It has accounted 
for 73 percent of the overall growth in private debt 
fundraising over the last decade, growing nearly 
40 percent per annum. 
Several tailwinds have supported this growth. 
First has been the withdrawal of banks, the traditional 
Direct lending has accounted 
for 73 percent of the overall growth 
in private debt fundraising over 
the last decade.
44
Private markets rally to new heights

financiers of middle-market companies. Direct 
lenders, which are not subject to the same regulatory 
capital requirements as banks and are more willing 
to extend sub-investment-grade credit, stepped 
into this void. Banks now account for just 11 percent 
of sponsored middle-market financings, down 
from nearly 70 percent in 2013 (Exhibit 30).
Second, direct lenders have enhanced their value 
proposition relative to syndicated lending channels. 
Borrowers, especially those backed by PE sponsors, 
have shown a growing preference for the speed, 
certainty, convenience, and confidentiality offered 
by direct loans, even when priced slightly wider 
than a syndicated alternative. The share capture of 
direct loans over syndicated loans has increased 
45	 Refinitiv.
over the past three years, hitting an all-time high of 
77 percent in the fourth quarter of 2021.45
Third, in a decade of sustained low interest rates in 
government and investment-grade corporate bonds, 
many institutional investors have rotated a portion 
of their fixed-income allocations into direct lending, 
which can generate higher yields and has not, to 
date, experienced onerous loss rates. 
Finally, sponsor-backed leveraged buyout 
transactions generate much of the demand for 
direct loans, and annual buyout deal volumes 
today are nearly three times higher than they were 
ten years ago. 
Sponsored middle-market deals by lender type, %
Source: Reﬁnitiv (deals submitted to private database)
Nonbank lender 
(nonregulated)
Bank lender (regulated)
2013
42
100
0
58
2014
59
41
2015
58
42
2016
67
33
2017
73
27
2018
82
18
2020
88
12
2021
89
11
2019
85
15
Exhibit 30
Bank lenders have largely exited the sponsored middle-market.
45
Private markets rally to new heights

In recent years, the addressable market for direct 
lenders has expanded in two principal ways. First, 
the strategy has been a beneficiary of its own 
success. As GPs scale up to larger funds, lenders 
are increasing the scale of companies that they 
can finance, thereby growing the universe of 
potential borrowers. Several of the largest private 
loans ever, all over $2 billion, closed in 2021. 
Second, direct lenders have become more willing to 
extend credit deep into the borrower’s capital 
structure, beyond the leverage of a traditional first-
lien loan. These financings are often structured 
in a single security, known as a unitranche, that 
extends to five or six times (or more) a borrower’s 
EBITDA. Unitranche has taken market share in 
recent years: in 2021, 36 percent of middle-market 
LBOs were structured as unitranche deals, up 
from 26 percent in 2020.46 Borrowers appreciate 
the simplicity of one-stop financing that can 
sometimes eliminate the need to arrange a separate 
second-lien or mezzanine security to achieve 
desired leverage. 
After a decade of impressive growth, the outlook for 
direct loans remains strong. PE, which drives 
much of the demand for private debt financing, has 
dry-powder reserves of more than a year and 
tailwinds that support its own continued fundraising 
success. Furthermore, more than $500 billion of 
existing debt at middle-market companies is 
maturing between now and 2026 and will need to 
be refinanced.47
Distressed, mezzanine, and special situations
Fundraising by the other major private debt 
substrategies declined in 2021. This pullback was 
not unexpected: investors piled into these 
strategies in 2020 to take advantage of potential 
financing opportunities resulting from pandemic-
related market dislocations. 
46	 Refinitiv.
47	 Refinitiv.
48	 Preqin.
49	 Refinitiv.
The decline in distressed fundraising was moderate. 
Including 2020’s banner haul, the strategy raised 
nearly $90 billion in the last two years, surpassing 
the previous two-year peak set in 2008.48 Unlike 
the period following the GFC, however, many 
distressed managers have found it challenging to 
deploy this capital given the speed and magnitude 
of the economic recovery. US institutional loan 
defaults totaled under $10 billion in 2021, down 
85 percent from 2020. The share of loans at 
distressed pricing ticked down steadily throughout 
the year, falling from 6.2 percent to 2.2 percent in 
the United States (versus a drop from 3.4 percent to 
0.8 percent in Europe).49 
Perhaps in response to this difficult deployment 
environment, distressed managers are proving 
increasingly willing to invest in nondistressed 
opportunities. Similarly, many mezzanine managers 
are also financing deals outside of their primary 
strategy, perhaps as a result of tightening spreads 
and the crowding-out effect of unitranche loans. 
This evolution is part of a larger private debt trend 
toward flexible capital that provides borrowers 
with “solutions” rather than predefined products. 
Borrowers appreciate the streamlined financing 
process with fewer potential counterparties, and 
GPs are able to increase their hit rate on deal flow 
and maintain their through-cycle relevance. 
AUM
Global private debt AUM totaled $1.2 trillion as of 
June 30, 2021, up 33 percent over the year prior. 
North America and Europe account for 90 percent 
of the market, 41 percent of which is housed 
in direct lending funds, up from 27 percent in 2016.
Private debt is by nature less sensitive to changes in 
the overall valuation environment than the other 
asset classes reviewed in this report. AUM growth, 
46
Private markets rally to new heights

therefore, is primarily fueled by fundraising 
growth. Despite this handicap, private debt AUM 
has nevertheless grown at a 17.6 percent annualized 
rate since 2016. As we enter 2022, private debt 
appears poised for another year of growth: current 
LP allocations remain shy of their stated targets, 
and almost 700 private debt funds are in the market, 
targeting an aggregate of $291 billion, both 
all-time records.
Performance
Private debt generated 10.1 percent pooled IRR 
in the first three quarters of 2021, almost twice the 
returns in full year 2020 and the best in-year 
return since 2017.50 Over the longer term, private 
debt’s median IRR of 9.4 percent (vintages 
2008–18) is roughly on par with real estate and 
infrastructure. Its 5.4-percentage-point spread 
between top- and bottom-quartile performers, 
50	Burgiss.
however, is roughly half as large (and less than one-
fourth as large as that of PE). LPs primarily look to 
private debt to deliver reliable, low-volatility returns 
that exceed fixed-income alternatives, which is 
exactly what the asset class has delivered over the 
last decade. 
At the substrategy level, performance follows 
predictable patterns. Senior debt funds (which 
proxy direct lending returns) delivered the lowest 
median returns (8.1 percent median pooled IRR) 
with the narrowest spread between top- and 
bottom-quartile performers (3.5 percentage points). 
Distressed and mezzanine funds, meanwhile, 
generated median returns 200 to 300 basis points 
higher than senior strategies and exhibit 
interquartile spreads roughly twice as large, with 
some of the highest-performing funds delivering 
over 20 percent net returns.
47
Private markets rally to new heights

Infrastructure and natural resources 
funds set three records this year. Global 
fundraising spiked to an all-time high 
of $137 billion in 2021. Deal volume reached 
a peak of $446 billion after 10.3 percent 
annualized growth over the last decade.51 
Global AUM broke the $1 trillion mark for 
the first time, reaching $1.1 trillion. In 
addition, returns of both infrastructure and 
natural resources (NR) funds improved 
considerably in 2021. 
Beneath these top-line figures, a sea change 
is at work within infrastructure’s mandate 
51	 Preqin.
and composition. Global macro trends, 
includ­ing the growing importance 
of environ­mental sustainability and the 
increasing role of tech­nology, are changing 
the types of infrastructure assets that 
are most in favor. The flow of capital into the 
asset class, furthermore, has pushed 
investors to look beyond traditional core 
infrastructure assets. Core-plus and 
value-add investments into new asset 
categories and infrastructure service 
providers are now in play, as GPs seek to 
accommodate the return expectations of a 
new class of infrastructure investor. 
5
Infrastructure and natural 
resources: Beyond roads 
and bridges
48
Private markets rally to new heights

These developments are taking place within the 
context of a projected global infrastructure 
investment gap of more than $15 trillion through 
2030. With new investors entering the space 
and societal changes accelerating, infrastruc­
ture’s mandate will likely continue to evolve. 
Fundraising 
Global fundraising for infrastructure and NR funds 
spiked to an all-time high of $137 billion in 2021, 
up 23.0 percent over the previous year (Exhibit 31). 
The surge follows a pandemic-driven decline in 
2020, when global fundraising fell 17.3 percent 
from the pre-COVID-19 high-water mark of 
$135 billion. Average fund size also reached a new 
high of $1.2 billion last year. 
Growth was driven by a strong year in Europe, 
where fundraising increased 87.7 percent to a new 
record of $74 billion. Notably, three funds over 
$5 billion were raised in Europe last year, including 
one over $15 billion. By contrast, just one 
Europe-focused fund over $5 billion closed in 2018, 
the previous peak year for European fundraising. 
2020
2021
2017
2018
2019
2016
2013
2014
2015
2012
2011
2010
46
44
11
27
38
60
88
87
110
105
128
109
135
111
137
6
7
6
8
14
17
8
15
11
7
12
10
7
7
21
18
15
11
8
4
7
7
4
13
16
20
23
29
28
47
44
39
74
20
34
48
43
54
50
56
66
75
55
45
Global Infrastructure and NR fundraising by region,1 $ billion
1Excludes secondaries, funds of funds, and co-investment vehicles to avoid double counting of capital fundraised.
Source: Preqin
2016–21 
CAGR, %
2020–21 
CAGR, %
Total
23.0
4.2
8.1
6.5
Rest of world
–8.6
–17.9
Asia
87.7
20.4
Europe
–16.8
–1.8
North America
+23% 
p.a.
Exhibit 31
Infrastructure funds hit an all-time high in 2021.
49
Private markets rally to new heights

While fundraising in Europe was robust, in North 
America fundraising fell for a second consecutive 
year and was 39.2 percent below the 2019 peak. 
The number of North American funds that closed in 
2021 was roughly half that of 2019, which suggests 
the two-year decline in fundraising may be an 
issue of supply, particularly given the fundraising 
growth in Europe. As is often the case, idiosyncratic 
timing of the market’s largest funds creates 
lumpiness. A single North American fund in 2019 
raised $22 billion, while no single fund raised more 
than $7 billion in 2021.
In Asia, fundraising fell 8.6 percent year over year, 
continuing a long-term decline. Fundraising in Asia 
has now fallen for five of the past seven years, 
declining 15.0 percent per annum since 2014, the 
highest year on record. 
AUM and performance
Infrastructure and NR’s global AUM reached 
a record high of $1.1 trillion as of the first half of 2021, 
breaking $1 trillion for the first time.52 This number 
52	 Preqin.
53	 Burgiss.
54	 Our fundraising data sets do not distinguish between infrastructure and natural-resources-focused funds (as many funds have flexible 
mandates across the two asset classes). Our performance data, on the other hand, classify funds according to the investments they have 
made, and therefore enable us to report infrastructure results separately from natural resources.
likely understates the total capital at work 
addressing infrastructure projects, given plentiful 
“shadow infrastructure” capital targeting 
infrastructure deals but residing outside of 
infrastructure-mandated funds (including PE funds 
making infrastructure and NR investments). In 
vehicles tagged as infrastructure and NR, AUM grew 
28.3 percent between the first half of 2020 and 
first half of 2021 and has now grown 15.8 percent per 
annum over the last five years. 
Despite stronger performance in most private 
markets asset classes, infrastructure fund returns 
were slightly lower in 2021.53 Their pooled net IRR for 
the first three quarters of 2021 was 6.2 percent, 
down from 7.4 percent in 2020. Over the longer term, 
the median net IRR since inception for infrastructure 
funds, 8.6 percent, is just below private debt and 
real estate. On the other hand, natural resources fund 
performance was strong last year, contrary to 
a longer-term trend.54 Buoyed by commodity price 
inflation in a recovering economy, NR funds 
produced a pooled net IRR of 19.3 percent in 
the first three quarters of 2021. Long-term 
In addition to investing in core assets 
like roads and bridges, investors are also 
deploying capital further up the risk 
curve, including in operating companies 
or early-stage technology ventures.
50
Private markets rally to new heights

performance of natural resources remains muted: 
the median net IRR to date of 3.3 percent is the 
lowest of the private markets asset classes.55
Mandate expansion
Infrastructure’s mandate has evolved over time 
in response to prevailing macro trends. Growing 
efforts to decarbonize the economy, along with 
proliferating ESG commitments, have attracted a 
larger share of infrastructure dollars to alternative 
energy and clean-tech assets. Similarly, the 
“digitization of everything” has increased investment 
55	 Burgiss.
56	 Preqin investor survey.
in communications and infrastructure technology in 
recent years. Deal volume in the alternative energy 
and communications sectors now accounts for 
50 percent of infrastructure deal volume, up from 
less than 20 percent in 2007 (Exhibit 32).
The outlook for continued investment in lower-
emission energy assets is robust. According to a 
survey by Preqin, more than 80 percent of 
fund managers believe that decarbonizing energy 
production will be the primary driver of private 
infrastructure investment in the coming decade.56 
Cleantech, a related but separate category of 
Sector share of global infrastructure deal value,1 
trailing 3 years, 2007–20, %
100
90
80
70
50
40
30
20
10
60
2007
2020
2018
2019
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
0
Alternative energy
Communications
Traditional buildings
Traditional energy
Traditional transport
1Some deals have been excluded due to negligible size and missing information. Alternative energy includes clean technology, geothermal, solar, hydro, and 
wind power. Communications technology includes telephone networks, internet services, cable and wireless networks. Traditional buildings include 
government, medical, and education buildings. Traditional energy includes power plants, water, and utilities. Traditional transport includes roads, bridges, 
tunnels, and other transport.
Source: Preqin
Exhibit 32
Deal activity has shifted from traditional infrastructure to alternative energy and 
communications tech since the GFC.
51
Private markets rally to new heights

infrastructure investment, has also grown in recent 
years: 15 of the largest 50 infrastructure deals in 
2021 were for cleantech assets.57 
A second growing sector within infrastructure is 
communications, which includes investment in 
broadband, cloud, telecom, and cell tower assets. 
Investment in communications infrastructure has 
increased its share of infrastructure deal value from 
10.8 percent in 2016 to 27.0 percent in 2020. 
Finally, a third flavor of infrastructure experiencing 
rapid growth is infrastructure technology, or 
“infratech.” Infratech can take two primary forms: 
modernizing existing infrastructure and building new, 
digitally native infrastructure. The former typically 
involves brownfield projects, such as upgrading 
traffic lights to include traffic data, while the latter 
involves greenfield projects, such as building 
electric vehicle (EV) charging fleets or automated 
waste collection units. Infratech activity is already 
sizable: from January 2020 through July 2021, 
announced digital infrastructure deals totaled 
$34 billion.58 
Infrastructure’s evolving risk profile
Infrastructure is changing in ways beyond its sector 
composition. New types of deal are emerging as 
well, driven by return compression in traditional 
infrastructure and shifts in infrastructure investors’ 
risk tolerance. In addition to investing in core 
assets like roads and bridges, investors are also 
57	 PitchBook.
58	 Infra-Deals, July 2021.
deploying capital further up the risk curve in core-
plus and value-add strategies. These investments 
can be in operating companies or early-stage 
technology ventures, and may include services or 
less conventional infrastructure assets such as data 
centers, modular healthcare units, or airport 
security systems. 
The growth of core-plus and value-add investments 
is linked to the evolving profile of an infrastructure 
investor. This is a dynamic relationship: new investors 
are increasingly open to an expanded definition 
of infrastructure investment while a broader range 
of investment opportunities is attracting new 
types of investors. These newcomers are often 
seeking higher risk and return opportunities 
than those that are available from traditional 
infrastructure investments. 
As more capital flows into infrastructure and returns 
compress (returns in recent years have decreased, 
with three-year pooled IRR below five- and ten-year 
IRR), investors may have to look beyond traditional 
assets to obtain the same return as before. Whereas 
the typical core-infrastructure deal may return 
approximately 10 percent, core-plus and opportu­
nistic infrastructure can return 15 to 20 percent. 
Large PE GPs number among some of the largest 
core-plus investors. In 2010, seven of the largest 
ten infrastructure funds were managed by 
infrastructure-focused GPs. By 2021, six of the top 
ten funds were managed by legacy PE GPs.
52
Private markets rally to new heights

More institutional investors are 
incorporating consideration of ESG factors 
in their investment decisions. Several 
US state pensions have recently introduced 
granular ESG targets or policies that 
exclude certain investments due to their 
environmental impact, while others 
have made the diversity of a GP’s personnel 
a formal criterion in manager selection. In 
Europe, the first set of the European 
Union’s Sustainable Finance Disclosure 
59	 Signatory directory, Principles for Responsible Investment (PRI). 
Regulations came into force last year, 
mandating firm- and product-level 
disclosures from financial market partici­
pants including GPs and LPs. By the end 
of 2021, over 3,500 investment managers—
among them numerous institutional 
investors—had signed the UN-supported 
Principles for Responsible Investment, 
demon­strating commitment to 
ESG issues.59
6
ESG: Progress on the ‘E’ 
and the ‘S’ 
53
Private markets rally to new heights

GPs have followed suit. In 2021, leading GPs and 
LPs came together to launch the ESG Data 
Convergence Project to standardize ESG metrics 
and reporting. Fundraising by GPs with formal, 
firm-level ESG policies increased to $630 billion, 
representing over half of total fundraising for 
the second year in a row. Larger players have led 
the charge: the average fund size of firms with 
explicit ESG policies is $1.1 billion, compared to 
$0.3 billion for those without such policies. 
Fund vehicles with an explicit ESG mandate have 
also grown. Often referred to as “impact” funds, 
these vehicles have doubled in the last five years, 
with 73 funds included in the 2021 vintage.60 
PE deal activity for ESG-related investments has 
also grown rapidly, at 16 percent per annum since 
2016 compared with 12 percent for PE overall.61
Fives stages of actioning ESG
Although ESG has been a point of emphasis in 
private markets investing for several years now, the 
landscape in 2021 is still one of transition. GPs 
are at various stages in their ESG evolution, with 
some just beginning to explore and others already 
60	 Preqin.
61	 PitchBook.
62	 The Science Based Targets initiative is a partnership between CDP, the UN Global Compact, World Resources Institute (WRI), and the World 
Wide Fund for Nature (WWF) that defines and promotes best practice in emissions reductions and net-zero targets, and provides companies 
technical assistance and resources to meet them. For more: https://sciencebasedtargets.org/.
seeking to capitalize on ESG as a competitive 
differentiator and driver of returns. We have 
observed that firms typically evolve in five stages 
as it relates to ESG:
1.	 Acknowledging that ESG matters. Most firms 
begin by a simple acknowledgment that 
ESG matters, often accompanied by a public 
declaration of ESG adherence, such as 
signing the PRI. This is a step beyond the initial 
“stage 0” that most firms occupied until recently, 
in which no attention is paid to ESG. 
2.	 Tracking ESG. Firms start tracking, measuring, 
and reporting ESG factors within their portfolio 
companies and potential target companies, 
primarily using standard ESG metrics (for 
example, energy consumed, employee turnover, 
and anticorruption policies).
3.	 Setting targets. Firms establish ESG targets for 
their portfolios and develop plans to reach 
them—for instance, by adopting Science Based 
Targets62 for emissions reduction. 
Reaching net zero by 2050 may require 
an incremental $3.5 trillion per year 
in decarbonization capex, comparable 
to one-third of current private 
markets AUM.
54
Private markets rally to new heights

4.	 Investing on an ESG basis. Firms integrate ESG 
into their investment processes and decision 
making. This process enables firms to make 
better investment decisions and capture value-
creation opportunities from ESG while also 
controlling for risk. 
5.	 Transforming companies. Finally, investors 
begin influencing and helping companies to 
improve on ESG as a way to capture value-
creation opportunities. Our experience shows 
that this last phase is where investors can begin 
to find alpha. As we noted in our report last 
year, emerging data suggest that improvement 
in a company’s ESG performance is positively 
correlated with shareholder returns. 
An evolution from stage 1 to stage 5 does not 
happen overnight. A growing number of firms have 
migrated beyond the first stage, but while they 
would have been considered pioneers five or ten 
years ago, having a set of transparent ESG metrics 
or setting ESG targets is now merely table stakes. 
A small proportion of firms are at stage 4 or beyond—
only 15 percent of firms report having investment 
policies that take ESG into consideration.63
Of course, the three components of ESG—
Environmental sustainability, Social responsibility, 
and sound Governance—are distinct from one 
another. While private investors have long focused 
on the “G” as a driver of performance, it is the 
“E” and the “S” that have come into sharper focus 
in recent years. In the remainder of this chapter, 
we examine specific ways in which investors are 
addressing these two priorities.
E: Sustainability calls for a new set 
of priorities
Considerations around environmental sustainability, 
particularly those related to energy transition and 
the decarbonization imperative, have profound 
implications for the private markets ecosystem. The 
63	 Preqin.
64	 The net-zero transition: What it would cost, what it could bring, McKinsey Global Institute, January 2022.
sheer amount of capital required to facilitate 
the energy transition alone is staggering: estimates 
suggest that reaching net zero by 2050 will 
require an incremental $3.5 trillion per year in 
decarbonization capital expenditures, comparable 
to one-third of current private markets AUM.64 
As GPs grapple with this transition, they should 
consider three key priorities: investing in companies 
that support the sustainability transition, changing 
how they value assets to factor in climate-related 
downside, and decarbonizing portfolio companies 
and assets to help limit risk exposure and open 
new avenues for value creation. 
Investing in companies that accelerate the 
sustainability transition
GPs seeking to invest in the sustainability transition 
can employ a range of strategies:
	
— Brown-to-green strategies focus on 
transforming “dirty” business models to be 
more environmentally friendly, typically 
by refocusing product, technology, or service 
offerings. For example, refineries can 
be retrofitted to ethanol plants, and offshore 
services businesses can pivot away from 
offshore oil and gas and toward offshore wind. 
	
— Supply-chain decarbonization consists of 
investing in companies that provide critical 
inputs in the decarbonization value chain—
for example, companies that supply businesses 
with advanced materials, components, or 
equipment required for decarbonization.
	
— Green growth consists of creating new green 
products. Examples include recyclable 
plastic packaging, sustainable textiles, green 
steel production, and carbon-neutral fuel. 
	
— Enabling technology focuses on emissions 
measurement, accounting, and mitigation 
support to help emitting companies manage 
55
Private markets rally to new heights

and abate their carbon footprint. Examples 
include emissions accreditation and trading 
platforms as well as ESG/HSEQ65 software. 
	
— Investing in winners involves scaling 
businesses that already have proprietary or 
leading decarbonization technology or 
capabilities. Potential targets could include 
manufacturers of EV components (including 
batteries) or low-carbon agriculture products. 
Most investors today recognize the importance of 
sustainability. To capture full value from the 
sustainability transition, investors will need to deepen 
their insights into green technologies, regulations, 
and market demand.
Rethinking valuation: The example of real estate 
Factoring sustainability-related risk into asset 
valuations is becoming increasingly critical for 
investors, especially in asset classes such as real 
estate, where there is increasing concern that 
climate change introduces significant risk. Leading 
65	 HSEQ = health, safety, environment, and quality.
66	 Brodie Boland, Cindy Levy, Rob Palter, and Daniel Stephens, “Climate risk and the opportunity for real estate,” McKinsey, February 4, 2022.
real estate players can respond by developing 
capabilities to quantify climate change’s impact on 
values and using this insight to inform investment 
and portfolio management decisions.
There are two major sources of climate change 
risk that impact the value of a given building and 
affect investors’ calculus on what to buy, sell, 
or retrofit.66 These are physical risks, both direct 
(affecting a building) and indirect (affecting 
the market in which the building exists). There 
are also sustainability transition risks, which include 
changes to the economy, regulation, consumer 
behavior, and technology; these can also be direct 
and indirect. 
Direct physical consequences can be conspicuous: 
for example, the value of homes in Florida exposed 
to climate risks are depressed by roughly $5 billion 
relative to unexposed homes. The indirect impacts 
of physical risk on assets can be harder to perceive. 
For example, climate-change-induced flooding 
could impact transportation arteries to and from 
To capture full value from the 
sustainability transition, investors will 
need to deepen their insights into 
green technologies, regulations, and 
market demand.
56
Private markets rally to new heights

a city center without directly affecting major 
corporate headquarters. The water may never 
enter the lobby of the building, but neither 
will the tenants.
Among the most direct sustainability transition 
impacts are regulatory requirements to decarbonize 
buildings. Since standard property valuation 
models generally do not account for decarbonization 
costs, investors and operators may be confronted 
with an unexpected major capital expense or tax. 
There are also a host of less direct but potentially 
more significant transition risks that affect whole 
real estate markets. In downtown Calgary, for 
example, the combination of oil price volatility and 
market access issues (driven by climate-change-
related opposition to pipelines) has contributed to 
vacancy rates of about 30 percent as of 
January 2021.67
To adequately respond, real estate owners 
and investors will need to understand the potential 
impacts of these four risk dimensions on 
revenue, operating costs, capital costs, and 
capitalization rates.
Decarbonizing portfolio companies
Another key component of investors’ sustainability 
strategy is decarbonizing portfolio companies. 
This is particularly important in sectors that face the 
most exposure to climate change: power, 
transportation, buildings, industry, agriculture, 
and infrastructure.
To develop the most appropriate path, private 
markets players need to understand the range of 
decarbonization options and their financial and 
strategic costs and benefits. The specific path to 
decarbonization will vary by industry and a firm’s 
specific context, of course, but the following steps 
can help improve the sustainability across 
investors’ portfolios:
67	 Dan Healing, “Calgary’s downtown office vacancy rates hit record levels amid oilpatch woes,” Global News, January 26, 2021.
68	 Sundiatu Dixon-Fyle, Kevin Dolan, Vivian Hunt, and Sara Prince, “Diversity wins: How inclusion matters,” McKinsey, May 19, 2020.
	
— Quantify the baseline emissions of each asset. 
A data-driven understanding of the starting 
point is necessary to prioritize decarbonization 
initiatives and measure progress. 
	
— Decide which type of decarbonization target 
to set. A range of potential target-setting 
standards exist: for example, measuring 
absolute emissions versus emissions intensity 
or setting targets at the sector level versus 
asset level. Players should develop a “house 
view” on target-setting standards that 
achieve business, investor, stakeholder, 
regulatory, and other objectives.
	
— Identify decarbonization levers. Build an asset- 
or portfolio-level marginal abatement cost 
curve that accounts for various market and 
policy scenarios. 
	
— Set up mechanisms to effectively deploy 
the decarbonization plan. These may involve 
changes to financing and governance, 
stakeholder engagement, and a range of 
operational, risk-management, and 
other programs. 
	
— Build the ability to monitor emissions 
reductions. Much of the value of decarbonizing 
will come from the ability to communicate 
progress to stakeholders, thereby creating 
market differentiation. 
S: Private markets firms are making 
progress on diversity 
The business case for diversity in private markets 
investing is clear.68 Increasingly, institutional 
investors are demanding that GPs provide diversity 
metrics for their firms and portfolios. Progress 
on this front is fast becoming table stakes to 
successfully raise capital. But the need to cast a 
57
Private markets rally to new heights

broader net for talent goes beyond fundraising: 
there is also early evidence that diversity can 
enhance performance.69 Diverse deal teams bring 
a broader set of relationships, perspectives, 
and experiences that can be crucial to relating to 
management teams and, ultimately, to closing 
deals. In a highly competitive industry, diversity is 
an edge that counts. 
In the last year, numerous private markets firms 
have accelerated efforts to advance diversity. 
Several pieces of recent data point to progress: US 
PE firms have increased the percentage of ethnically 
diverse talent and women at their junior levels. 
They have also made strides in rates of female 
promotion and retention in midlevel roles. 
Work remains to be done. Ethnic diversity in North 
American PE consists primarily of Asian employees, 
with low representation from Black and Hispanic/
Latinx populations. Gender parity for promotions is 
still lacking at most step-ups in the pipeline, and 
the count of women in the uppermost roles, particu­
larly the C-suite, continues to be underwhelming. 
Furthermore, firmwide diversity statistics tend to 
mask the disparity on deal teams (and hence 
in pay parity), as greater gender and ethnic diversity 
typically exists in non-investing and support 
functions of PE firms. 
69	 David Baboolall, Alexandra Nee, and Lareina Yee, “How private equity can catalyze diversity, equity, and inclusion in the workplace,” 
McKinsey, March 1, 2021.
70	 Data come from the 2021 Women in the Workplace report, by McKinsey & Company and LeanIn.org. Private equity data come from analysis 
of 18 large and mid-sized US-based private equity firms, encompassing roughly 30,000 employees, and is part of a larger data set that 
looked at 34 banking and consumer finance companies, as well as 49 asset management and institutional investor firms. Corporate America 
data come from analysis of 423 firms, encompassing roughly 12 million employees.
71	Alexandra Nee and David Quigley, “The state of diversity in private equity,” McKinsey, March 2022.
In a data set drawing from an analysis of 30,000 
private equity employees and a broader sweep of 
corporate America,70 we examined the state of 
gender and ethnic diversity by level at PE firms and 
corporate America. We also reflected on the 
practices of private markets firms that are leading in 
improving diversity and looked for ways other 
players can follow suit. Following are the results of 
this analysis and reflection.71 
Ethnic diversity: Some progress, with 
important caveats 
The US PE firms we analyzed have been more 
ethnically diverse at entry-level through principal/
director roles than corporate America for 
the past few years. PE also roughly matches 
the corporate world in the percentage of 
ethnically diverse managing directors (MDs) and 
MD equivalents. 
Some meaningful caveats temper the success of 
these firms in achieving ethnic diversity. First, 
representation by people of color remains limited 
and below that of corporate America. PE’s ethnic 
heterogeneity is due primarily to the hiring of Asian 
professionals, who constitute more than 60 percent 
of ethnically diverse employees in PE today. 
Looking at junior roles in PE, Asian employees’ 
US PE firms have increased the 
percentage of ethnically diverse talent 
and women at their junior levels. 
Work remains to be done.
58
Private markets rally to new heights

share of the workforce is close to double the 
percentage in the corporate sphere.
Second, although PE matches all US companies 
in terms of how many ethnically diverse people hold 
MD or equivalent roles, this is not in itself overly 
impressive: in both sectors, only about 16 percent of 
men and roughly a fifth of women in such roles are 
diverse. Third, PE is still far behind US corporations in 
terms of ethnic diversity in the C-suite (Exhibit 33).
Gender diversity: More women work in PE, but 
few get to the highest levels
Entry-level roles in our US PE data set are now 
majority female. Entry-level gender diversity 
continues through senior associate, vice president, 
and principal/director roles. Female representation 
drops, however, at principal/director level and 
above, in what has been termed “the broken rung” of 
the career ladder—a phenomenon that occurs in 
corporate America overall, although not to as great 
39
37
37
30
32
25
30
23
20
19
12
18
Women of color
Men of color
Entry level/
associate
Senior 
associate
C-suite
Principal/ 
director
VP
MD
Entry level/
associate
Senior 
associate
C-suite
Principal/
director
VP
MD
Private equity
Corporate America 
Private equity
Corporate America 
37
33
35
28
28
23
21
19
16
16
11
17
Ethnic diversity in US PE vs corporate America, 2020, % of ethnically diverse employees vs total 
workforce of the same gender, by role1 
1Levels listed are based on McKinsey’s 2021 Women in the Workplace Private Equity Industry data, and correlate to corporate America pipeline roles in the 
following ways: entry level/associates are entry level; senior associates are managers; vice presidents (VPs) are senior managers/directors; principals/directors 
are VPs; and managing directors (MDs) are senior VPs in corporate America pipeline.
Source: Women in the Workplace study, 2021 
Exhibit 33
In ethnic diversity, US PE leads corporate America at junior levels but falls 
behind in the C-suite.
59
Private markets rally to new heights

an extent at this point as in PE’s talent pipeline 
(Exhibit 34).
Gaps in promotion parity along the pipeline limit 
the number of women who rise to upper management. 
Over the last two years, men were promoted at 
higher rates than women in almost all roles, with 
only the percentage of women promoted into the 
C-suite surpassing the rate of men (Exhibit 35). 
Statistics on the promotion of women into PE’s 
senior ranks do suggest some positive signs: 
at each level above VP, the gap in percentage points 
53
48
44
41
37
35
30
30
20
27
15
24
Entry level/
associate
Senior 
associate
C-suite
Principal/ 
director
VP
MD
Private equity
Corporate America
Gender diversity in US PE vs corporate America, 2020, 
% of women of workforce, by role1
1Levels listed are based on McKinsey’s 2021 Women in the Workplace Private Equity Industry data, and correlates to corporate America pipeline roles in the 
following ways: entry level/associate are entry level; senior associate are manager; VPs are senior manager/director; principals/directors are VP; and MD are 
SVPs in corporate America pipeline.
Source: Women in the Workplace study, 2021 
Exhibit 34
US PE is behind corporate America in gender diversity of senior leadership but 
leads for earlier roles.
Women
Men
9
19
7
10
10
11
9
10
6
1
Senior 
associate
C-suite
Principal/ 
director
VP
MD
US PE promotions by gender,1 % of employees promoted into each level, 2020 
1Promotion rate deﬁned as the number of people promoted into the level over the number of people at the beginning of the year in the previous level. Entry level 
excluded because employees are typically hired externally at this level.
Source: Women in the Workplace study, 2021
Exhibit 35
In US PE, men were promoted at higher rates than women in almost all roles.
60
Private markets rally to new heights

between eligible men and women being promoted 
narrowed in 2020 (with the gap in promotion rates 
growing for earlier-tenure roles). 
How private markets firms are making progress
Private markets firms that lead on diversity, equity, 
and inclusion are focused on recruiting diverse 
profiles for all roles and are actively taking steps to 
debias hiring and promotion processes. These firms 
zero in on attracting talent of various ethnicities, 
especially those less represented in the profession, 
as well as retaining and promoting their strong-
performing women. 
One successful strategy to debias hiring and 
promotion processes is to be transparent 
about desired skills, capabilities, and above all, 
outcomes for each position in the investing 
hierarchy. By pinpointing the expected outcomes for 
each level, firms minimize the primacy of the style 
with which success is achieved, and zero in on actual 
achievements. Defining the results that matter 
for each role is crucial to broadening the lens, 
without lowering the bar, for candidates to receive 
equitable sponsorship, mentorship, debiased 
feedback, and ultimately, fair promotion. 
61
Private markets rally to new heights

Amid strong growth in the private 
markets—global AUM has grown 19 percent 
annualized since 2016—the number of 
private markets firms has risen by only 
6 percent per year. Private markets players 
have scaled considerably: the average 
firm is over 60 percent larger than it was in 
2016, and firms at the top end are larger 
than ever before. For example, eight have 
raised more than $50 billion in the last 
five years, up from only one in the five-year 
period ending in 2016.
72	 Sudeep Doshi, Bryce Klempner, and Nikhil Sudan, “How private equity is tackling operational complexity,” McKinsey, 
October 26, 2018.
In most industries, scale begets 
greater operating efficiency and higher 
profit margins. In private markets 
investing, however, operating leverage has 
been elusive. Increased operational 
complexity—driven by additional asset 
classes and geographies, more fund 
vehicles and separate accounts, and a 
larger and more diverse set of limited 
partners (each with a growing set 
of bespoke reporting demands)—has 
mitigated the extent to which large GPs 
benefit from scale economies.72 
7
Digital and analytics: 
Efficiency and performance 
through digitization 
62
Private markets rally to new heights

While the private markets overall are still in the 
early stages of digital maturity, leading 
participants are increasingly investing in digital 
and analytical solutions to combat such scale 
inefficiencies. Our research suggests that large 
multistrategy fund managers (more than 
$10 billion AUM) typically spend $1 million to 
$5 million per year on third-party solutions and 
software per asset class. Factoring in related 
spend on internal capabilities, leading managers 
are investing tens of millions of dollars per year. 
First and foremost, digital leaders get the basics 
right. A clear enterprise road map that outlines the 
key digital and analytics use cases, the business 
value of each, and their sequencing in terms of quick 
wins and major builds, is a prerequisite for greater 
digital maturity. It is also critical to build a high-
quality digital infrastructure, including purposeful 
organizational setup and codified processes for 
efficient and secure data management. 
On top of this foundation, and of particular 
importance to achieving scale efficiencies, are tools 
that automate repetitive tasks, whether in 
investment processes or middle- and back-office 
functions. Firms can install tools that pre-
populate research memos, build deal-screening 
funnels, generate portfolio dashboards for 
committee meetings, and automate tasks such 
as data entry and expense reporting. 
Finally, firms are also investing in enhanced data 
science and analytical capabilities that contribute 
directly to the investment process. These tools 
can extract knowledge and insights from complex, 
unstructured data across a broad range of 
application domains. Firms are also developing 
streamlined software portals utilized by 
LPs and portfolio companies, which can improve 
customer experience while increasing self-
serve capabilities (and thereby reduce the burden 
on investor relations from ad hoc requests). 
Our experience suggests efficiency gains 
from such initiatives can be meaningful: we have 
seen cost savings of 4 to 7 percent and 10 to 
15 percent productivity increases on an AUM-per-
employee basis. Concentrated investment in 
digital and analytics solutions can also considerably 
improve the quality of insights that firms derive 
from data. The following is a cross section of specific 
tools and capabilities we have seen leading private 
markets firms develop:
	
— Data warehouses as a single source of truth. 
Data warehouses to store, organize, and 
quality-check data across a GP’s operating 
ecosystem are essential when scaling. The 
resulting data set addresses a common GP pain 
point, serving as a single source of truth from 
which information can be pulled for analytics, 
reporting, and other use cases.
	
— Company and asset screening. Analytical 
tools that ingest and screen market and 
company information can more efficiently 
identify companies likely to fit a GP’s 
investment thesis. Firms can use such tools to 
create a targeted list of potential targets for 
manual review. 
	
— Automated generation of inputs into the 
diligence process. Data gathering for diligence 
processes involves many routine but time-
intensive processes that can be automated. 
Examples include geospatial analyses to 
forecast sales-performance improvement and 
brand navigators to test brand strength. 
Investment professionals still play key roles, of 
course, but automating inputs can accelerate 
timelines and free up their capacity for higher-
value analyses and decision-making. 
	
— Textual analysis for faster tracking and 
reporting. Natural-language processing tools 
are capable of ingesting and analyzing written 
documents, including financial statements and 
63
Private markets rally to new heights

memos, which can be particularly valuable in 
portfolio monitoring applications. A tool that 
collects data on portfolio-company performance 
from management statements, for instance, 
can facilitate faster and more efficient 
LP reporting.
After a decade of advising private markets players 
on their digital capabilities, we have identified 
a number of learnings: 
	
— Set a business-backed, use-case-driven vision. 
Successful transformations start with under­
standing the use cases digital capabilities are 
intended to enable. A GP may choose to optimize 
for efficiency improvements in investment 
decision making and external reporting. 
Alternatively, GPs may pursue tools focused on 
portfolio-company value creation through, 
for instance, value-based pricing, high-fidelity 
customer segmentation, or efficient routing 
for services companies. 
	
— Make the investment. Building distinctive 
digital capabilities doesn’t come cheap: 
investments can quickly scale into the tens of 
millions of dollars. It’s also more than a question 
of just choosing the right software vendor. 
Currently, there is no off-the-shelf software that 
can provide all the functionalities private 
markets players seek. Leading firms have 
learned that integrating first-party and third-
party data is key to differentiated insight. 
	
— Focus on talent. Digital transformations require 
professionals with specific skills, all of whom 
are in high demand from other private markets 
firms as well as broader industry. To win the 
war for talent, private markets players must 
provide attractive compensation and benefits 
packages and, perhaps more importantly, a 
clear and fruitful career path.
	
— Be agile. Building firmwide digital and analytical 
capabilities can be a long journey. Building 
and iterating on a minimum viable product is 
often more productive than attempting to solve 
a problem in one fell swoop. The old adage is 
particularly true in moving toward a more digital 
private markets business: firms should not let 
perfect be the enemy of good. 
	
— Commit to change. Digital transformation 
requires reconsidering a firm’s operating model. 
Reengineering entire investment and 
operational processes to harness technology 
requires robust change management 
across the front and back offices. Early buy-in 
and engagement from business leaders is 
key; the process cannot be “outsourced” to the 
CTO or a couple of analytics champions. 
CEO-level sponsorship is often required to 
create, sustain, and capture the value from 
a digital transformation. 
Digital and analytics solutions can help private 
markets firms maintain efficiency as they scale, 
create differentiated insight, and improve 
investment performance. Building these capabilities 
comes with challenges, including the need for 
hefty investment, competition for talent, and the 
imperative to design tools customized for 
highly specific use cases. The reward, however, 
can be speed, accuracy, and efficiency that 
enable productivity gains across the back office 
and faster and better investing decisions.
64
Private markets rally to new heights

Further insights
Authors
McKinsey’s Private Equity & Principal Investors Practice 
To learn more about McKinsey & Company’s specialized expertise and capabilities related to private 
markets and institutional investing, or for additional information about this report, please contact:
Alejandro Beltran de Miguel
Madrid
Alejandro_Beltran@McKinsey.com 
Paul Maia
New Jersey
Paul_Maia@McKinsey.com
Gary Pinshaw
Sydney
Gary_Pinshaw@McKinsey.com
Matt Portner
Toronto
Matt_Portner@McKinsey.com 
David Quigley 
New York
David_Quigley@McKinsey.com
John Spivey
Boston
John_Spivey@McKinsey.com 
Brian Vickery
Boston
Brian_Vickery@McKinsey.com
McKinsey’s Private Equity & Principal Investors practice publishes frequently on issues of interest to industry executives. All of our 
publications are available at: McKinsey.com/industries/private-equity-and-principal-investors/our-insights
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65
Private markets rally to new heights

Acknowledgments
Contributors
Gabriel Morgan Asaftei, Sara Bernow, Aaron 
Bielenberg, Brodie Boland, Jonathan Christy, 
Sudeep Doshi, Alex Edlich, Matt Fitzpatrick, Alastair 
Green, Vaibhav Gujral, Graham Healy-Day, Sean 
Kane, Bryce Klempner, Ryan Luby, Kayla Miele, Bill 
Murphy, Subbu Narayanswamy, Alexandra Nee, 
Rob Palter, Alex Panas, Vivek Pandit, Gary Pinkus, 
Aditya Sanghvi
Research and analysis
Sophia Brañes (lead), Morgan Brokaw, Cody 
Clements, Sneha Pathuri, Skomantas Pocius (lead), 
and Mary Kate Whelan
Editor
Katy McLaughlin
Contributing editors
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Chris_Gorman@McKinsey.com
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Copy editing
Nick de Cent
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McKinsey’s Private Equity & Principal Investors Practice is 
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Private markets rally to new heights

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