Growth in Private Equity To Slow To a More Moderate Pace, Says Deloitte

Private equity growth will unlikely continue at its current pace, but assets under management should still grow to $4.6 trillion by 2020, according to a new forecast released by Deloitte Center for Financial Services. The report finds that private equity has outpaced other asset classes over the past decade, with assets rising at a 13.7 percent compound annual growth rate. In comparison, hedge fund grew at 7.5 percent.  But over the next five years, Deloitte projects private equity assets under management will see a compound annual growth rate of just 5 percent.  'So what that's going to mean is that lower asset valuation will give rise to lower management fees, and at the same time there's regulatory costs that are being added to the business,' explained Frank Fumai, partner and National Audit leader in Deloitte's Private Equity group. Fumai added that the combination of lower fees and higher costs could lead to lower profitability for private equity firms, and he expects a new focus on operational efficiency within the firms. He also believes private equity firms will evolve over the next few years, likely taking a more risk averse approach to investing, as well as become more specialized. Fumai spoke with TheStreet's Rhonda Schaffler in New York.