Disclaimer: This is not financial advice – just my thoughts about how I would structure my buyside career.
In the early days of private equity, firms like KKR were trailblazers in a largely untapped market. Their landmark deal—the leveraged buyout of RJR Nabisco in 1989—set the tone for what private equity could achieve, delivering staggering returns. Back then, the industry was free from the intense competition it faces today. KKR and a handful of others could navigate the market with a unique edge, capitalizing on opaque company finances and having direct access to management.
Private equity has since exploded in popularity, and so has the competition. The number of private equity firms has grown exponentially, with over 10,000 firms globally in 2023, since the leveraged buyout was pioneered. This increase in players has driven down returns across the board, alongside a more cyclical slump from higher interest rates. According to Bain & Company, the average private equity fund delivered returns of 8-10% in recent years—down from the 20-30% that top firms were able to achieve in the early 2000s. With more firms fighting over a limited pool of assets, the golden era of private equity dominance is fading.
This decline in returns has highlighted a broader issue: once an asset class becomes overcrowded, the opportunity to generate outsized gains dwindles. As private equity faces this challenge, it’s time to explore new, niche asset classes that may offer the next wave of profitable opportunities.
So where do we turn next? The answer lies in niche asset classes—those with high barriers to entry that remain relatively under-explored. These markets are often overlooked because they require a specialised understanding or offer a unique edge that not everyone can access.
Take racing horses, for example. Investing in thoroughbred horses requires deep knowledge of breeding, training, and racing circuits. It’s a high-stakes, high-reward market that isn’t for everyone—but for those with the know-how, it can be incredibly profitable. Another example is luxury watches, where appreciation over time can rival more traditional investments. But again, it takes a trained eye to spot which pieces will hold or grow in value.
Traditional buyside firms are also continuously innovating in financial instruments which can unlock value in the economy. Unison and Carlyle collaborated to develop an instrument for investors to buy a portion of the equity upside from property owners, as well as a convertible bond.
These niche markets are less crowded because they require expertise that the average investor lacks. That’s where the opportunity lies—if you can build the necessary skill set, you position yourself to take advantage of markets with less competition.
Securitisation: Unlocking Value in Unexpected Places
One of the reasons these asset classes are becoming more attractive is the increasing potential for securitisation. Securitisation allows for the creation of financial products that can be bought and sold between multiple parties. It essentially turns illiquid assets into tradable ones, which means assets like racing horses or luxury watches could be structured into investment vehicles that are easier to enter or exit.
What this creates is an edge—the ability to unlock value by making previously inaccessible or illiquid assets available to a wider audience. The process of securitisation doesn’t just make these assets more appealing to investors; it also increases their liquidity, opening the door to new investment opportunities.
The Power of a Unique, Deep Skill Set
This shift presents a huge opportunity for professionals with specialised knowledge. If you’ve built a deep skill set in a particular niche—be it understanding bloodlines in horse racing, tracking the market for collectible watches, or navigating another unique asset class—you have an edge.
The markets are evolving, and there’s massive potential for investors who can bring something different to the table. In today’s world, the key to success may not lie in following the crowd but in forging your own path through a unique and under-explored asset class. As competition rises in traditional areas like private equity, looking to niche markets could provide the fresh opportunities you need.
Final Thoughts
Private equity’s golden days may be fading, but that doesn’t mean the buyside opportunity is disappearing. It just means we need to look elsewhere—into new, specialised asset classes where competition is thinner and expertise is rewarded.
If you’re willing to invest in developing a deep, specialised skill set, you could find yourself ahead of the curve, investing in areas that others have yet to fully understand. So, as the traditional finance landscape continues to evolve, now is the time to consider exploring new asset classes in your career.
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