Kay McCarthy, Head of Jersey Office at The International Stock Exchange (TISE), shares her insights and perspectives on key trends within private capital and how these are influencing activity on the Exchange.

Private capital has become a major driver of mergers and acquisitions (M&A) volumes in recent years and now accounts for a significant proportion of all M&A activity globally. Yet despite this impressive growth, private equity deal activity has not been immune to the volatility across the broader markets.

Higher interest rates leading to increased debt financing costs, coupled with recession fears and geopolitical uncertainty, caused a notable decline in deal activity in 2023. However, this year has brought a more stable macroeconomic environment and with it a recovery in sentiment.

The first half of the year has seen a resurgence in global M&A generally and according to the FT, private equity-backed M&A activity is playing a significant role in this growth, rising 40% in the first half of this year.

Investment trends

With improved market conditions and record cash reserves, the investment focus continues to be on high growth sectors such as environmental, social and governance (ESG) in infrastructure, particularly green energy projects, artificial intelligence (AI) and cybersecurity.

Demand for clean infrastructure is growing and there has been a surge in available capital to meet this demand. In the past, governments have taken the lead in national infrastructure investment but, with tighter government budgets and elevated debt levels, it has been difficult to fund large scale projects. Private credit and investment banks, via their infrastructure funds, have been filling the gap and ESG is now a key consideration in infrastructure projects.

Similarly, investment in global renewables continues to rise as governments take action to support green energy solutions and the scale of investment required makes private capital a key part of the solution. Several of the world’s largest asset managers, including Brookfield Asset Management and Blackrock, have been investing heavily into this strategy. At TISE, we see multiple green energy infrastructure related transactions each year.

"Private capital is no stranger to innovation and AI has become a game-changer both in terms of decision making efficiencies and investments."

Another major global investment theme is AI. Investment in automation and AI focussed companies is now one of the top trends leading M&A and, whilst the technology is still at an early stage of development, many industries are benefitting from AI automation. According to Statista, the global AI market is set to grow at over 15% compounded annually over the coming six years, more than doubling from around US$306 billion in 2024 to US$739 billion by 2030. 

Private capital is no stranger to innovation and AI has become a game-changer both in terms of decision making efficiencies and investments. Managers are integrating AI technologies into their strategies to increase valuations and improve revenue as the technology is helping to create cost efficiencies and identify potential investment opportunities.

The adoption of AI is also opening up new opportunities in addressing cybersecurity challenges. Demand for cybersecurity opportunities will continue to accelerate as cybersecurity threats increase, coupled with the rising cost of data breaches. Companies with software to address these challenges will remain attractive.

This year has seen significant cybersecurity acquisitions. In March, Growth Capital Partners’ cybersecurity firm Bridewell acquired cyber security consultancy Arculus Cyber Security. Bridewell is a UK cyber security specialist firm and through the acquisition it has strengthened its public sector footprint. Another example of this trend is Hewlett Packard Enterprise’s acquisition of Juniper Networks, a networking equipment maker and wi-fi security company. AI and cybersecurity are likely to be one of the key driving forces behind M&A in the coming years.

New sources of capital

Private capital firms are also seeking capital from new sources. These include co-investment opportunities and more recently, firms have been opening up to retail investors.

Private capital fundraising and investment allocation is sometimes undertaken in conjunction with partners such as large global state-owned pension funds and sovereign wealth funds (SWFs). In the past few years, SWFs have significantly diversified their investment strategies and have been actively pursuing high profile investments in sectors such as infrastructure and renewable energy, taking significant stakes in key assets in developed economies. It is likely that this trend will continue.

"Traditionally, private capital transactions have been closed off to individual investors... That is now beginning to change..."

Traditionally, private capital transactions have been closed off to individual investors and the only way to access private deals was generally through closed-end funds. That is now beginning to change as some of the larger firms look at ways to tap into the significant pool of retail savings. In January, Blackstone raised approximately US$1.3 billion for a private equity fund that is tailored to individual investors. Other managers have launched similar retail focussed funds. This is also likely be the start of an ongoing trend.

Public and private markets
TISE is best known as one of Europe’s leading bond markets, attracting high profile financing deals involving the world’s largest sovereign wealth and pension funds. The Exchange also attracts significant fundraising and acquisition financing transactions from the major private capital players globally.

A high proportion of the Exchange’s business flows are correlated to market sentiment and with that it has seen a strong first half of the year for listing activity. There were 444 newly listed securities during the first six months of 2024, an 18.4% increase on the equivalent period last year. There has been a notable pick up in private capital backed transactions across key asset classes including infrastructure, technology and real estate.

"In parallel with this highly successful public market, last year TISE launched a unique solution for private companies, TISE Private Markets."

In parallel with this highly successful public market, last year TISE launched a unique solution for private companies, TISE Private Markets. It provides unlisted companies with a dedicated marketplace through which they can access an integrated set of tailored electronic solutions, including trading, settlement and registry management. This new development is innovative among stock exchanges globally.

With the number of substantial private companies in the UK and Channel Islands growing by 4,700 over the last decade to nearly 20,000, TISE sees robust growth opportunities in private markets and continues to invest in the development of its unique offering.

TISE’s dynamic offering across both public and private markets plays a key role in Jersey’s first-class ecosystem for clients to access global capital markets. The Island is well-placed to capitalise on the potential opportunities which will arise from the increased confidence in markets and renewed appetite for progressing investments.

This article was originally published in Jersey - First for Finance, 16th Edition, September 2024.